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Big banks, waited years for a rate hike, get pummeled

NEW YORK, N.Y. – With oddsmakers all but pulling a summer rate hike off the table after a terrible U.S. jobs report and a wash of other disheartening economic data, the nation’s biggest banks took pummeling from investors Friday.

The financial sector has been waiting seven years for the Federal Reserve to increase the short-term interest rates substantially, which allows banks to follow with higher rates for borrowing.

The Fed raised rates at the end of last year, but just barely.

The report from the Labor Department on Friday, showing that there was a drastic slowdown in hiring by U.S. employers in May, rewrote the story many had expected to unfurl later this month and in July when the Fed meets.

Financials were the biggest decliner by far of the 10 Standard & Poor’s sectors Friday, with the biggest banks leading the way down.

Bank of America Corp. took the biggest tumble in midday trading, down 4.2 per cent. Shares of Citigroup Inc. also traded down more than 4 per cent as CEO Mike Corbat suggested second-quarter earnings would drop 25 per cent from the same period last year.

JPMorgan Chase & Co. and Wells Fargo & Co. both tumbled more than 2 per cent on the heels of the dismal jobs report.

Just a couple of weeks ago, bank stocks surged as Fed officials hinted that an increase in June was likely.

However, the U.S. added just 38,000 jobs in May, the fewest in more than 5 years. The Institute for Supply Management followed with a report showing that U.S. services firms grew at the slowest pace in more than two years last month.

The Commerce Department reported that a key category that tracks business investment plans fell, and also that U.S. trade deficit, after falling to the lowest point in more than two years, increased in April as a surge in imported goods outpaced a rebound in exports.

Regional banks also took a hit. BB&T Corp. and KeyCorp. both fell about 3 per cent while Regions Financial Corp. traded down 4 per cent.

It became clear before noon that investors were fleeing stocks in financial companies and the majority of other sectors as well, in favour of the safety of bonds.

The yield on 10- and 30-year Treasury notes fell to levels not seen in weeks as investors scattered for cover.