US banks suffer biggest one day fall

US bank stocks suffered their biggest one-day decline since the financial crisis began overnight, on expectations a deepening global economic slump will reduce employment, crimp access to credit and spur more writedowns.

The broad-based Standard & Poor's Financials Index plunged 17 percent, a bigger drop than the 16.1 percent decline recorded on Sept 29, which had been the largest one-day slide since the middle of 2007. Major US stock indexes on Monday fell between 7.7 percent and 9 percent.

Monday's declines came as the nation's business cycle arbiter, the National Bureau of Economic Research, said the economy has actually been in recession for a year, and the Institute for Supply Management said US factory activity fell in November to its lowest level since 1982.

Federal Reserve Chairman Ben Bernanke, meanwhile, in a speech in Austin, Texas said the economy will "probably remain weak for a time," and that with a target interest rate at 1 percent the central bank had "obviously limited" room to keep cutting rates to spur growth.

Financial shares were among the largest percentage decliners among major US stocks. Dow Jones industrial average components Citigroup Inc skidded 22.2 percent, Bank of America Corp dropped 20.9 percent, JPMorgan Chase & Co fell 17.5 percent, and American Express Co was off 15.7 percent.

Other decliners included Merrill Lynch & Co, which fell 23.4 percent; Goldman Sachs Group Inc, down 16.8 percent, and Morgan Stanley, off 23.1 percent. Wells Fargo & Co fell 19 percent after Oppenheimer & Co analyst Meredith Whitney on CNBC television called the lender her biggest "sell" recommendation among financial companies.

Monday's declines followed big gains last week. They came as more analysts offered dire outlooks for US banks, which have already suffered several hundred billion dollars of loan losses and writedowns since the middle of 2007.

Fox-Pitt Kelton analyst Albert Savastano, who rates the sector "underweight," wrote that increased writedowns on investments could offset some of the capital injections from the US government's $700 billion bank bailout.

Richard Bove, a Ladenburg Thalmann & Co analyst, cut his earnings forecast for Citigroup, saying the US unemployment rate could reach 10 percent in 2009 and push loan losses higher, and that $45 billion of government capital injections might allow the bank to write off assets more aggressively.

Whitney, meanwhile, said she expects lenders to pull more than $2 trillion of credit lines over the next 18 months, with severe consequences for US consumers.

"We view the credit card as the second key source of consumer liquidity, the first being their jobs," she wrote. "Pulling credit at a time when job losses are increasing by over 50 percent year on year in most key states is a dangerous and unprecedented combination."

- Reuters