(For more on analysts' outlook for U.S. financial institutions, double click
on [ID:nBNG327142])
(Recasts; adds details, Washington Mutual, analyst comments, stock prices,
dateline, bylines)
By Tenzin Pema and Jonathan Stempel
BANGALORE, India, June 9 (Reuters) - Shares of large U.S. banks and thrifts
suffered broad declines on Monday after analysts warned that the global credit
crisis will cause loan losses in the sector to mount.
Lehman Brothers Inc analyst Jason Goldberg said the largest U.S. banks
could post $79 billion of credit losses this year, 30 percent more than he had
previously forecast and more than twice the year-earlier level, with many of
the problems stemming from real estate.
While regulators have tried to boost market liquidity, Goldberg wrote that
"we expect elevated loan losses and further loan loss reserve building to
continue to weigh on near-term results."
Goldberg cut his 2008 earnings forecasts for more than 20 banking companies
and lowered his price target for most of these, including the five largest:
Citigroup Inc (C.N), Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N),
Wachovia Corp WB.N and Wells Fargo & Co (WFC.N).
Meanwhile, Washington Mutual Inc (WM.N) shares fell to a 16-year low after
UBS AG analyst Eric Wasserstrom predicted the largest U.S. savings and loan
could face $27 billion of losses in all asset classes through 2011.
He widened his full-year loss estimate for the thrift to $4.45 per share
from $4, and cut his price target to $8.50 per share from $11.
Fears the credit crisis has much further to run were fanned when Lehman
itself projected a $2.77 billion second-quarter loss, more than 10 times what
analysts on average expected.
This led Wall Street's smallest major investment bank following the
collapse of Bear Stearns Cos to bolster its capital base by raising $6 billion
in securities offerings.
PAIN SPREADS
Banks have been battered by mounting loan losses as the slumping economy,
skidding housing markets, record oil prices, rising unemployment and tighter
credit conditions make it harder for borrowers to stay current on their debts.
Exposure to subprime mortgage debt and structured finance products have
already resulted in more than $400 billion of write-downs and credit losses
industrywide since the middle of last year.
But credit problems once concentrated in lower-quality, subprime mortgages
have spread into higher-quality loans. The weakness has already begun to filter
into other kinds of borrowings, including credit cards and auto debt, as well
as loans to commercial real estate developers.
"The subprime error will go down as one of the biggest mistakes ever," said
Greg Peters, head of global credit strategy at Morgan Stanley, at the Reuters
Investment Outlook Summit. "What we haven't even seen yet is the regional bank
problem coming home to roost."
Lehman's Goldberg said card losses were rising mainly in states with highly
troubled housing markets, including California, Florida, Ohio and Arizona.
Late on Monday afternoon, the KBW Bank Index .BKX was down 4 percent,
compared with a 0.3 percent drop in the Standard & Poor's 500 index .SPX.
Among the KBW index's largest percentage decliners were JPMorgan, Wachovia,
Regions Financial Corp (RF.N) and Washington Mutual.
The KBW index had been down 21.4 percent this year through Friday.
The following table lists the estimate and price target changes on large
banks by Goldberg, the Lehman analyst:
COMPANY RATING PRICE TARGET CURRENT PRICE 2008 EPS VIEW
New Old June 6 Close New Old
Bank of America Equal weight $45 $47 $30.50 $2.40 $2.80
Citigroup Overweight $31 $34 $20.06 $0.33 $0.40
JPMorgan Chase Overweight $50 $53 $40.09 $2.70 $3.25
Wachovia Overweight $31 $34 $20.13 $1.40 $1.70
BB&T Corp Underweight $36 $37 $28.06 $2.95 $3.05
Fifth Third Bancorp Equal weight $25 $27 $16.74 $1.80 $2.02
First Horizon National Equal weight $13 $14 $9.36 $0.10 $0.25
KeyCorp Underweight $23 $25 $17.30 $1.30 $2.10
Marshall & Ilsley Equal weight $26 $27 $21.28 $1.78 $2.05
PNC Financial Services Equal weight $70 $71 $60.98 $4.80 $4.85
Regions Financial Underweight $23 $25 $15.45 $2.05 $2.15
State Street Overweight $88 $94 $68.02 $5.15 $5.18
SunTrust Banks Underweight $58 $64 $46.32 $2.95 $3.05
TCF Financial Overweight $22 $23 $15.25 $1.52 $1.65
Bank of New York Mellon Overweight $53 $57 $41.15 $2.95 $3.00
Wells Fargo Overweight $33 $34 $25.42 $2.10 $2.20
Zions Bancorp Equal weight $54 $55 $39.77 $4.30 $4.40
National City Overweight $8.50 -- $4.95 -$0.32 -$0.08
Comerica Underweight $40 -- $35.31 $2.60 $2.70
M&T Bank Equal weight $93 -- $81.18 $6.40 $6.60
Synovus Financial Underweight $12 -- $10.58 $0.72 $0.83
US Bancorp Overweight $37 -- $32.07 $2.45 $2.53
(Additional reporting by Jennifer Ablan and Walden Siew in New York; Editing
by Jarshad Kakkrakandy, John Wallace, Gary Hill)
