Mixed action marks early trading in financials

SAN FRANCISCO (MarketWatch) � Financial stocks closed lower Thursday, led down by shares of Citigroup Inc. and Morgan Stanley, for a weekly loss with U.S. stock markets closed for Good Friday.

Shares of Citigroup C �closed down 0.7% after the Office of the Comptroller of the Currency said the bank had failed to comply with money-laundering regulations. Shares are down 4.8% for the week. Read more on Citi.

Morgan Stanley MS �shares declined 1.6%, resulting in a 6.3% weekly loss, following a late Wednesday report in the Financial Times that CEO James Gorman has been in talks with Moody�s Corp. MCO �to try to avoid a downgrade from the ratings agency.

Click to Play Dimon has top banker pay

J.P. Morgan Chase made Chief Executive Officer James Dimon the king of Wall Street, awarding him $23 million in compensation, David Benoit reports on Markets Hub. Photo: Reuters/Lucas Jackson.

The newspaper reported that Gorman hoped to avoid a downgrade, because it could interfere with possible plans that Morgan Stanley has to buy out partner Citigroup�s stake in brokerage Smith Barney.

Goldman Sachs Group Inc. GS also closed down 1.6%, for a 5.2% loss for the week.

In the broader market, the Financial Select Sector SPDR ETF XLF �which tracks financial components in the S&P 500 index SPX , fell 0.3%, and dropped 1.7% on the holiday-shortened week. The KBW Bank Index BKX , which follows the leading 24 U.S. banks, also declined 0.3%, and finished the week down 1.8%.

Earlier, the Labor Department said U.S. unemployment benefit claims fell slightly to 357,000. Read more on jobless claims.

NYSE Euronext NYX �shares dropped 1.3% after reports that Facebook Inc. FB �was going with rival Nasdaq OMX Group Inc. NDAQ �for its expected listing in May. NYSE shares finished the week down 5.7%. Nasdaq shares closed up 1.2%, but finished the week down 1.5%. Read more on Nasdaq and Facebook.

Shares of PNC Financial Services Group Inc. PNC �dropped 0.5%, for a 1.5% weekly loss, even though the company raised its dividend by 14% and said it would buy back up to $250 million in shares. Read more on PNC.

Other notable decliners Thursday included Charles Schwab Corp. SCHW , First Horizon National Corp. FHN , and Assurant Inc. AIZ .

Providing some buoyancy to the sector, shares of blue-chip Bank of America Corp. BAC �rose 0.3%, but shares still finished the week down 3.6%. Other notable gainers Thursday included IntercontinentalExchange Inc. ICE , Franklin Resources Inc. BEN �and XL Group PLC XL .

AIG AIG shares rose 1.1% after the U.S. government�s pay czar approved an unchanged $10.5 million salary for Chief Executive Robert Benmosche for 2011, though the company showed his total compensation rose 66% using another method for calculating pay. Shares were the sector�s best weekly performer, rising 6.7%.

Click to Play Morgan Stanley CEO�s pay: $13 mln

Morgan Stanley CEO James Gorman received total compensation in 2011 valued at $13 million, down 15% from a year ago. (Photo: Ross Mantle for The Wall Street Journal.)

The 2011 plan approved by the U.S. Treasury�s so-called special master allowed Benmosche to earn a cash salary of $3 million for the year and get a �stock salary� of $7.5 million, according to an AIG filing with securities regulators.

The total amount approved by the pay czar was unchanged from a year earlier, but the timing of when a portion of Benmosche�s 2010 compensation was paid resulted in the 66% increase to $14 million from $8.4 million when calculated according to the rules governing how companies report executive pay to the Securities and Exchange Commission. The government gets to shape AIG�s pay proposals because the insurer received a government rescue beginning in 2008. The Treasury has been selling off its stake in the company over the past year, but still owns 70% of AIG.

Since 2009, the special master has determined that compensation for AIG�s top 100 employees should be based primarily on performance, and has pushed for a large portion of the compensation to be paid in stock that executives can�t sell for a year or more. Cash salaries in most cases have been limited to $500,000.

Fifth Third Bancorp FITB �shares closed up 1%, for a 4.1% weekly gain, after the bank said it will sell certain assets, including about $5 billion in money market assets to Federated Investors Inc. FII � Read more on Fifth Third.

Among the other financials in the Dow Jones Industrial Average DJIA on Thursday: American Express Co. AXP �added 1.3%, Travelers Cos. TRV �fell 0.6%, and J.P. Morgan Chase & Co. JPM �declined 0.2%.