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LAST MONTH BROUGHT

a telling change to the S&P 500, an index that tracks the purchase price of America's largest companies. Technology companies surpassed financials to become the largest sector. Perhaps it's more accurate to say that banks, brokers, insurers and real estate trusts forfeited the lead with a marvelous decline. Since late 2006 they have lost a third of their value, sliding from 22% of the index to a mere 16%.

The fall, of course, was preceded by a rash of loose lending to house buyers at a time when houses had become unsustainably expensive. I argued in April 2007 that renting an apartment had become a better deal than buying a house because of an astonishing run-up in the ratio of house prices to incomes and rents. April 2008 housing data, released Tuesday, shows house prices have dropped a record 15% since that column.

One the whole, Americans now own just 46% of the value of their homes the lowest percentage since World War II. That figure includes longtime homeowners with no mortgages. Among those still paying off their homes, some 16% have negative equity, meaning they owe more than their homes are worth. Those attached to such "upside-down" loans have a financial incentive to simply stop making payments and give their houses up to foreclosure. In May foreclosures jumped 48%. Of course, foreclosures swell the supply of houses for sale, further depressing prices. Some economists reckon one in four mortgages will be upside-down in a year.

Banks have seen their profits erased in four ways. They've lost revenue, since they're issuing fewer mortgages, packaging fewer into investments and trading fewer on behalf of clients and themselves. They've taken large trading losses, since the value of mortgage-based investments they already held has plunged. The drop in asset values has forced banks to raise fresh capital by issuing new shares and borrowing, which dilutes profits or subtracts from them, respectively. It has also forced them to sell business units, often choice ones, which has robbed some banks of growth potential.

Consider Cincinnati-based Fifth Third Bancorp, which serves businesses, savers, borrowers and investors, primarily in the Midwest. Among key states for the company are Michigan, whose economy has been hurt by waning car sales, and Florida, whose real estate decline has been among the nation's most dramatic. On June 18, as SmartMoney.com reported, the bank announced three moves designed to raise capital. It slashed its quarterly dividend to 15 cents a share from 44 cents. It planned for the issuance of $1 billion worth of convertible preferred stock. (That's perhaps the best of neither world if you're the borrower. Fifth Third must pay 8.5% in dividends on the issue as if it were a bond, and the preferred stock will be converted into common stock if the price of the latter rises sufficiently, which will dilute earnings.) And it said it will sell noncore businesses worth $1 billion.

Candidates for sale include the company's data processing, trust, leasing and mortgage banking divisions. Only data processing would fetch $1 billion, say analysts. It contributed 15% of sales last year, and has been one of the company's most promising divisions, growing at an average compounded rate of 14% over the past nine quarters. As a whole, Fifth Third now looks likely to produce its 10th consecutive quarterly profit decline.

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At that price the stock fetches less than nine times this year's earnings forecast, a discount of more than a third to the broad market. Analysts reckon the company has about $12.70 in tangible book value per share, or the amount its assets might fetch in a sale, although that value is surely disputable and fast-changing. The company's shrunken dividend, when divided against its shrunken share price, works out to a generous 5.7% yield.

Don't expect Fifth Third, or any of America's banks, really, to return to their former level of profitability soon. My sense this is a topic for another day is that their recent decline isn't just a dip, but a reversion to a less prominent position in the economy, the one they might have held absent the past decade's string of asset bubbles. After the housing losses are digested, banks might turn boring for a while. But a boring stretch might still produce handsome returns for investors who bought on the cheap. Daring ones might want to tuck shares of unloved Fifth Third away.

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Data as of June 24, 2008.

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• High Wheat Prices May Leave Bread Maker Stale

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