Treasury helps banks, haunts insurers

That was the story in the financial sector Monday as Treasury investment began flowing faster into the second tier of the nation’s largest banks and lifting their shares. Meanwhile insurers fell sharply amid an ongoing debate about any government help for that sector.

Bank stocks in the U.S. rose Monday as the Treasury Department parceled out billions of dollars of capital to more troubled banks in moves designed to shore up the financial system.

State Street Corp. (STT) , SunTrust Banks Inc. (STI) and KeyCorp (KEY) were among the banks that announced plans Monday to participate in the government’s capital purchase program.

The Treasury program is designed to boost capital ratios and help the banking sector get through the credit storm.  

Focusing its high-dollar bank plan on several new banks over the last few days, the government pumped almost $30 billion into 8 regional banks since Friday. That does not include some investments announced for smaller banks.

Since Friday, the Treasury has invested a total of just over $27 billion in eight firms in a move designed to boost capital ratios and help the industry weather the credit crisis.

Investors cheered the moves and sparked double-digit percentage gains in stocks like Regions, Huntington, and Comerica.

Shares of Fifth Third, another big regional bank, rose almost 20% after it said over the weekend that it has applied for a Treasury investment and is awaiting word.

An exchange-traded fund tracking financial stocks, the Financial Select Sector SDPR (XLF) , was up more than 2% at last check. Meanwhile, the SPDR KBW Bank ETF (KBE) rose 4%, and SPDR KBW Regional Banking ETF (KRE) added 3%.

However, the insurance sector fell Monday amid growing speculation it may need government help too.

“Capital adequacy has become the biggest overhang issue for the large-cap life insurers,” according to a Stern Agee research report on Monday.

That anxiety about the broad insurance industry was highlighted Monday after CNA Financial Corp. (CNA) said it swung to a third-quarter net loss of $331 million. The insurance company is also suspending its quarterly dividend and announced plans to issue $1.25 billion of preferred stock.

The SPDR KBW Insurance ETF (KIE) slipped nearly 4% in recent action.

The Stern Agee report concluded that, “If the larger companies are able to gain access

to TARP on a basis similar to that afforded the banks to-date; it could put M&A back on the table as a catalyst for the group.”

 

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