Shares of National City Corp (NCC.N) dropped more than half on Monday as investors wondered which regional bank might need a merger partner as the sector suffered what analysts called a deepening crisis of confidence.
The big Ohio bank slid $2, or 52 percent, at $1.70 on the New York Stock Exchange. The stock fell more than 25 percent on Friday.
"There are a number of regional banks which may need help, either because of the weakening mortgage market or simply because of the weakening economy," said Michael Sheldon, chief market strategist, RDM Financial Group.
"I think it's absolutely a crisis of confidence, there's some real weakness in the economy," he said. "But the larger issue is simply a paralysis of the economy or lack of confidence in financial institutions."
Earlier Monday, Citigroup Inc (C.N) said it agreed to buy the banking operations of Wachovia Corp (WB.N) -- a deal brokered by the government to ensure "financial and economic stability," Federal Reserve Chairman Ben Bernanke said in a statement.
The closely watched S&P Financial index (.GSPF) fell 5 percent, with Fifth Third Bancorp (FITB.O) -- another Ohio-based firm -- dropping 20 percent.
Two weeks after the financial crisis reached a new and more serious level, including the disappearance of the traditional Wall Street investment bank, several European bank were rescued on Monday.
Last week, JPMorgan Chase & Co (JPM.N) agreed to acquire the assets of Washington Mutual Inc (WM.N) as part of the largest failure of a U.S. bank. The deal made JPMorgan the United States' second-largest bank behind Citigroup.
"The biggest banks are getting too big to fail," said William Larkin, fixed income manager at Cabot Money Management in Salem, Mass.
"That's going to be an issue going forward because obviously there's going to be some new, heavy regulation coming down the pipeline."
(Reporting by Juan Lagorio and Jonathan Spicer; editing by Jeffrey Benkoe)
Morgan Stanley (MS.N) agreed to sell a 21 percent equity stake to Mitsubishi UFJ Financial Group Inc (MUFG) (8306.T), Japan's largest bank, for $9 billion on Monday, bolstering its capital base and improving its chances for surviving the credit crisis.
Still, shares of Morgan Stanley sank 10 percent to $22.39 on the New York Stock Exchange as investors balked at the terms of the deal.
MUFG will acquire 9.9 percent of Morgan's common stock at $25.25 a share for $3 billion. The Japanese bank also will acquire $6 billion of perpetual convertible preferred stock paying a hefty 10 percent dividend.
The preferred shares have a conversion price of $31.25 a common share, or Morgan Stanley's book value at the end of August. After one year, one-half of the preferred stock will convert into common if Morgan Stanley's stock trades above 150 percent of the conversion price for a certain period.
The two banks, in a joint statement, also said they formed a strategic alliance focused on corporate and investment banking worldwide. Initial areas of collaboration will also include retail banking and asset management.
"This strategic alliance offers a powerful opportunity to accelerate Morgan Stanley's transition to a bank holding company," Morgan Stanley Chief Executive John Mack said in a statement.
(Editing by Jeffrey Benkoe)
Consumer electronics retailer Circuit City Stores Inc (CC.N) posted a wider quarterly loss on Monday, as declining traffic hurt sales in the softer U.S. economy, and it withdrew its financial outlook.
The company, which announced the departure of its chief executive officer last week, said it is reviewing its business as it looks to turn around operations.
The company had a net loss of $239.2 million, or $1.45 a share, for the second quarter, compared with a loss of $62.8 million, or 38 cents a share, a year earlier.
(Reporting by Karen Jacobs, editing by Gerald E. McCormick)