Bank stocks took another nose-dive on Wednesday on concerns about the European debt crisis and strenuous stress tests unveiled by the Federal Reserve on Tuesday, analysts said.
Bank of America Corp
The KBW Bank <.BKX> is down about 3 percent.
The stress tests unveiled by the Fed are more rigorous than a year ago, said Jefferson Harralson, an analyst with Keefe, Bruyette & Woods Inc.
Investors are worried that we won't see a normal resumption of dividends and share buybacks at healthier banks, and for more stressed banks, this could force them to raise capital, Harralson said.
Despite some signs of improvement in the economy and in the health of banks, investors remain worried about outside factors such as the European debt crisis, said Frank Barkocy, director of research at Mendon Capital Advisors.
There are signs that fundamentals look better but we have to get these external clouds of concern to dissipate, Barkocy said. That may take some time.
In the stress tests, Bank of America and five other large banks will be measured for their ability to withstand further deterioration in the European debt crisis.
Banks will also be examined for their exposure to investor requests to buy back soured mortgage loans, Harralson noted.
Obviously, Bank of America is the bank that stands out there, he said.
(Reporting by Rick Rothacker and Joe Rauch in Charlotte, N.C.; Editing by Maureen Bavdek)