NEW YORK — Investors took little comfort from the government’s pledge to provide more support to ailing Citigroup Inc., and sent bank stocks sharply lower Friday.
The announcement of the deal left investors with more questions than answers.
“Though we’re dealing with Citigroup today, there’s still lots of questions about Bank of America and other banks,” said Rich Hughes, co-president of Portfolio Management Consultants. “We’re waiting for the results (of the stress test) and it’s weighing on investors’ minds.”
“Until we can come up with the actual assessment and get it out on the table, I think we’re going to live in this unpredictable, unstable period,” Hughes said.
The country’s top 20 banks are currently undergoing a stress test conducted by the government to determine whether they need more capital if the economy should deteriorate further. Investors also are concerned about how the government plans to handle the toxic assets on banks books.
The banking crisis has intensified in recent weeks as the economy deteriorates further and concerns about full-fledged nationalization of the country’s financial system weigh on investors.President Barack Obama’s proposed budget outlines spending up to $750 billion more for additional financial industry rescue efforts on top of the $700 billion Congress has already authorized.
The FDIC now expects bank failures will cost its deposit insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion. There have already been 14 bank failures this year, following 25 in all of 2008.
Facing a depleting insurance fund, federal regulators on Friday raised the fees banks pay and levied an emergency premium in a bid to collect $27 billion this year — placing further burden on an already struggling industry.
Shares of smaller, regional banks, which are seen as more vulnerable to the country’s economic woes, fell sharply Friday. It is uncertain at this point how the government’s stress test will apply to banks with less than $100 billion in assets.