Sector Snap: Financial-services shares fall

While broader indexes fell between 1.5 percent and 2 percent, many financial-services firms were down even more, such as Assured Guaranty Ltd., which fell 8.2 percent to $19.68 in afternoon trading.

Investment banks and national banks were among the hardest-hit portions of the financial services market Thursday after a Goldman Sachs Group Inc. analyst cut his rating on investment banks to "Neutral" from "Attractive" and placed Citigroup Inc. on "Conviction Sell" list.

Analyst William Tanona cut the view on the banks because "we are hard pressed to find a catalyst that will move the group significantly higher over the next few months as fundamentals continue to deteriorate," he wrote in a research note.

Tanona said Merrill Lynch & Co., with its quarter ending June 30, is likely to face $4.2 billion in write-downs during the second quarter tied to collateralized debt obligations and value adjustments connected to deterioration among bond insurers.

Collateralized debt obligations are complex financial instruments that combine various slices of debt. Investment banks have been cutting their value consistently since the middle of 2007.

Tanona expects Merrill Lynch to lose $2 per share during the second quarter.

Shares of Merrill Lynch fell $1.44, or 4.1 percent, to $34.02.

Merrill Lynch did not immediately return calls seeking comment.

Citigroup is also likely to face further write-downs in the second quarter, Tanona said in the note. The bank will also have to deal with increasing provisions to cover losses in its loan portfolios as a result of "rapidly deteriorating consumer credit trends," Tanona wrote in the note.