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Morgan Stanley, Citigroup pace financials' fall

SAN FRANCISCO (MarketWatch) -- Morgan Stanley and Citigroup Inc. shares closed down more than 4% Monday, leading the financial sector lower as fresh anxiety over the European debt crisis rolled across the Atlantic.

Shares of Morgan Stanley (MS) closed down 4.7% after the chief executive of the company's German unit stepped aside as officials probe the alleged overpriced purchase of a stake in a French utility by the state of Baden-Wuerttemberg. Read more on Morgan Stanley Germany.

Citigroup (C) shares closed down 4.4%.

The sector, along with the broader market, fell under pressure as the Spanish government on Monday made its request for aid for the banking sector official, with a letter from Finance Minister Luis de Guindos to Eurogroup President Jean-Claude Juncker. Read more on Spanish aid request.

A recent independent audit found Spain's banks would need up to €62 billion extra capital in an extremely stressed environment.

In other European developments, Greek Finance Minister Vasilios Rapanos will reportedly resign from his post after being rushed to the hospital, and Cyprus became the latest euro-zone country to request a bail. Read more on Cyprus.

J.P. Morgan (JPM) closed down 1.9%. The bank is revamping the unit that logged more than $2 billion of derivatives trading losses to avoid risky positions in those and other investments, according to a report published late Sunday.

The Wall Street Journal report said that the unit, called the Chief Investment Office, will continue to permit other potentially risky investments.

In the broader market, the Financial Select Sector SPDR ETF (XLF) , which tracks the financial stocks in the S&P 500 (SPX) , dropped 2.1%. The KBW Bank Index (BKX) , which follows the 24 leading U.S. banks, closed down 2.7%.

Shares of Wells Fargo & Co. (WFC) declined 1.8%. On Monday, the bank said it would buy WestLB AG's subscription finance portfolio, with about $3 billion in outstanding commitments, for an undisclosed sum.

The financial stocks in the Dow Jones Industrial Average (DJIA) , other than J.P. Morgan, all closed lower. Bank of America Corp. (BAC) fell 4.3%, American Express Co. (AXP) fell 1.3% and Travelers Cos. Inc. (TRV) fell 1.9%.

Other notable decliners with losses of 3% or more included E-E*TRADE Financial Corp.(ETFC) , State Street Corp. (STT) , BlackRock Inc. (BLK) SunTrust Banks Inc.(STI) , Zions Bancorp.(ZION) , Fifth Third Bancorp. (FITB) , Comerica Inc. (CMA) , Regional Financial Corp. (RF) , Genworth Financial Inc.(GNW) , Unum Group(UNM) , Aflac Inc. (AFL) , Hartford Financial Services Group Inc. (HIG) , Lincoln Financial Group (LNC) , and Prudential Financial Inc. (PRU)