Lower Expectations for Some Major Banks

Brittney Barrett  |

In what’s fast becoming a tale as old as time, the financial sector weighed on the broader market today as recurring concern over the Greek crisis and market dominated investor sentiment. Financial shares were the steepest decliners on the S&P with Citigroup (C) leading the way and reaching a fresh 52-week-low. Shares for the bank are down 51.14 percent year-to-date. Monday’s steep losses could be attributed to a combination between anxiety over European debt contagion and a Wall Street Journal report stating that the bank is considering reorganizing top management at its office in Japan.  The potential of a reshuffling appears to be linked to the news of a regulatory investigation into Citi’s disclosure policies when selling financial products.

Citigroup was only one of a number of components on the sector to experience similarly catastrophic losses. Goldman Sachs (GS) also tumbled following a Credit Suisse analysis forecasting the firm would lose 70 cents per share in the 3rd quarter. Howard Chen, the banking analyst behind the claim rescinded an earlier prediction of a 95 cent per share profit. Resident CNBC financial analyst, Meredith Whitney also reduced earnings expectations for Goldman, though she maintains the firm will still come up around 31 cents per share profit for the quarter. Whitney’s assessment is a steep negative revision from her previous position of $3.39 profit per share. The statements contributed to a reversal of early optimism from the morning’s report indicating faster-than-expected manufacturing activity.

 Credit Suisse continued to terrorize the financial sector with revised outlook. Analysts at CS also reduced their outlooks on Morgan Stanley’s (MS) earnings for the year to 66 cents from 88 cents. A reduction in risk appetite and diminution in risky asset prices were identified as the impetus for the revision. Morgan Stanley is down 54.17 percent for the year.

 Credit Suisse had little to say about Bank of America (BAC) for the day, but the company’s business website was down for the second consecutive day. Last week’s announcement that the bank would begin charging $5 per month for the use of its debit card also upset customers and led to a litany of negative responses. The debit card announcement is just the latest trouble for the North Carolina based financial institution. Year-to-date shares of Bank of America have fallen over 58.55 percent as of close today. BAC hasn’t seen such weakened levels since the peak of the financial crisis in 2009.

Many Wall Street bargain bin enthusiasts have contributed to ongoing volatility within the financial sector. In the event of good or bad news, they are fast to snap up shares, resulting in a constant see sawing for shares of major banks. Earlier in the year some analysts and talking heads argued that the banks were undervalued from a technical standpoint. The argument was made that the financial institutions would continue to play their same role in the economy and thus may be worth more than investors were crediting them with. Over the course of this year, banks have continued to struggle with a flailing housing market and low unemployment that paints a picture of a plodding recovery.

On a long enough timeline, these realities, as well as slowing global growth, may begin to discourage investors from buying banks, even at severely depleted levels.

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