Shares of banks and other financial institutions fell as an unexpected leg up in Treasury yields took its toll on bank earnings.

Bank of America shares slid after the second largest U.S. bank by assets warned of deep paper losses on its bond portfolio. Morgan Stanley shares rose after the investment bank posted first-quarter earnings ahead of analyst expectations.

But Morgan Stanley echoed warnings from Goldman Sachs, JPMorgan Chase and Citigroup about the cloudy outlook for profit growth in the second half of 2024. Rising rates and distressed commercial real-estate investments took their toll on regional banks. Shares of Pennsylvania lender PNC Financial said net income fell 22% from a year earlier. M&T Bank shares fell after the regional bank said shifts in interest rates would cause net interest income to fall between 4% and 5% this year from 2023 levels.

One strategist said losses for the banking sector could get much worse if banks and investment firms are forced to mark commercial real-estate values to market. "Remember a lot of the commercial building debacle has not hit the market yet," said Joseph Rinaldi, president and chief investment officer at wealth adviser Quantum Financial Advisors. "If that happens, that will force the Fed's hand to reverse rates quickly." 


 Write to Rob Curran at rob.curran@dowjones.com

(END) Dow Jones Newswires

04-16-24 1813ET