"Weaker-than-expected Bank of America profits deterred investor hopes that companies may escape the difficulty of the global credit markets," said Nicholas Mosley, an analyst with Wachovia Corp.
The Dow Jones Industrial Average fell 60.49 points to 12,788.87.
The S&P 500 declined 5.14 points to 1,385.19, dragged down by the financial sector, which fell 1.1%.
The energy sector was the only advancing sector of the S&P, gaining 0.6% as crude oil prices surged to a new record high of $117.60 a barrel. The Nasdaq Composite gave up 6.83 points to 2,396.14.
Wall Street rallied Friday, cheered by upbeat earnings from Google Inc. and write-downs from Citigroup Inc. that weren't as bad as some had feared.
Monday's banking news was less welcome.
Bank of America Corp. reported a first-quarter earnings drop of 77% to $1.21 billion, or 23 cents a share, as its provision for credit losses climbed and it posted $2.72 billion in net charge-offs.
Earlier, the Financial Times reported that the Charlotte, N.C.-based banking giant is planning to sell part of its 9% stake in China Construction Bank in a bid to shore up its balance sheet.
The newspaper also reported that Bank of America would exercise options to buy more shares in the Chinese bank at below the market rate and that it's in talks to sell its equities prime brokerage unit to BNP Paribas.
National City Corp. is close to finalizing a capital infusion of more than $6 billion from a private-equity firm and a number of large shareholders, according to The Wall Street Journal.
In other earnings news, Merck & Co. said first-quarter net income surged 94% to $3.3 billion, or $1.52 a share. Adjusted to exclude special items, Merck posted income of 89 cents a share, topping the 86-cent consensus.
Also in health care, Eli Lilly & Co. said first-quarter net income roughly doubled to $1.06 billion, or 97 cents a share, up from $508.7 million, or 47 cents, earned a year earlier, driven by increased sales of Cialis and Cymbalta.
With little on the economic calendar, the dollar weakened, losing 0.4% against Japan's yen at 103.45 yen as oil prices again hit fresh highs.
Among other companies due to report results Monday, Texas Instruments is expected by analysts to report a first-quarter profit of 43 cents a share after the close.
Asian markets strengthened across the board overnight, while European equities lost ground, with the French CAC 40 recently down 1%.
By Kate Gibson