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Fresh concerns about instability in the banking sector sent shares of Boston-run Sovereign Bancorp tumbling 70 percent Monday.
Shares plunged $5.21, or 62 percent, to $3.16 in afternoon trading after bottoming at $3.15, its lowest price in almost 22 years.
That was despite an analyst from Janney Montgomery Scott LLC upgrading the company's rating to "Buy" from "Neutral."
In yet another development highlighting weakness in the financial services sector, the Federal Deposit Insurance Corp. said Monday that Citigroup Inc. will acquire Wachovia's banking operations. Investors had been worried about Wachovia's stability as it grappled with mounting losses over souring mortgage debt.
Sovereign, the 18th largest banking institution in the nation, has more than 785 community banking offices in the mid-Atlantic region and New England.
According to a filing with the Securities and Exchange Commission earlier this month, Sovereign sold its entire portfolio of collateralized debt obligations, or CDOs.
CDOs are complex investments backed by pools of mortgages and other assets that have plummeted in value since the start of the credit crisis more than a year ago. The unrealized loss for the CDOs is $254 million, the company said.
The sale reduced Sovereign's tangible capital levels by $136 million, according to the filing.
Sovereign said in the filing that it continues to be proactive in reducing risk on its balance sheet and that it remains well capitalized.
Representatives for Sovereign Bancorp weren't immediately available to comment Monday.
In upgrading Sovereign's rating to "Buy," analyst Richard Weiss noted that the company's capital should be sufficient to allow it to survive. The Philadelphia-based bank's deposit base and lending footprint will also facilitate better operating results when the economy improves, Weiss wrote.
Shares of the company are down 27 percent in the year to date as of Friday's close, compared with a 17 percent decline in the S&P 500, of which Sovereign is a component.
The broader markets sold off sharply ahead of a vote by the House on a $700 billion rescue plan for troubled financial companies.
This program aired on September 29, 2008. The audio for this program is not available.
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