Financial stocks take a tumble

NEW YORK (AP) — Investors are back to worrying about banks.

Long-present unease about soured loans bubbled over on Monday after Bank of America Corp. said it set aside $13.4 billion to cover lending losses even as it posted earnings that beat expectations. Other big banks have also increased loss provisions in the past two weeks.

Financial stocks suffered some of the day’s worst declines, and major market indicators tumbled more than 3 percent, including the Dow Jones industrial average, which fell nearly 290 points.

Bank of America plunged 24.3 percent and Citigroup fell 19 percent as investors became worried that cleaning up bad loans from banks’ balance sheets may have further to go than many had anticipated.

Joe Saluzzi, co-head of equity trading at Themis Trading LLC, said traders are now viewing bank earnings with more skepticism and believe that the better-than-expected profit reports may be disguising problems.

“They’re looking at bank numbers and are saying they are not that great,” Saluzzi said.

Even without growing anxiety about financial stocks, traders had been looking for some pullback after the Dow jumped 24 percent from 12-year lows in early March.

The renewed worries about banks’ debt problems were aggravated by news reports that their lending remains tight and that the government may swap its debt in banks for ownership stakes as its $700 billion bailout fund runs down.

Because of the central role lending plays in keeping businesses of all kinds going, investors have been hunting for signs of a recovery in banks before they get more optimistic about the broader economy.

The market has been encouraged by early indications that a government drive for lower interest rates has been helping banks step up lending, but investors are still sensitive to any signs of trouble.

Now they’re on high alert about what the government will say in two weeks when it reports results of in-depth examinations to see which banks might need more help to stay afloat if the economy gets even worse.

Energy and materials companies also fell along with the prices of key commodities they rely on such as crude oil.

According to preliminary calculations, the Dow fell 289.60, or 3.6 percent, to 7,841.73.

Broader stock indicators also lost ground. The Standard & Poor’s 500 index fell 37.21, or 4.3 percent, to 832.39, and the Nasdaq composite index fell 64.86, or 3.9 percent, to 1,608.21.