Sector Snap: Regional bank stocks tumble

WaMu's assets were sold to JPMorgan Chase & Co. for $1.9 billion amid the largest bank failure in U.S. history.

Investors were rattled as the government's effort to avoid an economic meltdown unraveled. On Thursday, Republican lawmakers rejected the emergency financial rescue package due to the enormous price tag of the White House-backed proposal, hours after congressional leaders from both parties announced they were nearing agreement on a deal.

National City Corp. shares lost $1.42, or 29 percent, to $3.56, while Sovereign Bancorp fell 60 cents, or 7.4 percent, to $7.55. BB&T Corp. shares fell $1.45, or 4 percent, to $37.80.

Shares of Regions Financial Corp. fell just 11 cents to $13.74, helped slightly by a Friedman, Billings, Ramsey & Co. report that said Southeastern banks such as Regions, Suntrust Banks, Synovus and BB&T Corp. should see growth in deposits and market share as a result of JPMorgan's takeover of WaMu--since the banks overlap with WaMu in the Florida market.

BMO Capital Markets analyst Peter Winter said the government's bailout plan needs to be approved as credit markets have frozen, credit spreads have widened and it's getting more difficult for businesses and consumers to get access to credit.

"There is no silver bullet to fix the credit crisis and there is no guarantee that economy won't go into a recession, if we're not in one already," Winter wrote in a research note Friday. "However, the ultimate goal of a rescue plan is to stabilize housing, which could lead to a recovery in the overall economy."

Winter said his top turnaround picks are Midwestern bank KeyCorp and National City, given that they both have strong capital positions, and both are addressing credit issues by writing down problem assets and rebuilding reserves.

"Both should benefit from whatever bailout plan ultimately passes given their large concentration in real estate," he added.

KeyCorp shares fell 21 cents to $13.79.