Banks Taking Their Medicine

The banks and brokers have been on the front lines in the recent battle between bulls and bears. Of course, they are not all created equal, with the bounce in the big banks paling in comparison to the recovery in the shares of Goldman Sachs.

But maybe the damage will not be as great as originally feared. Although the numbers are big nonetheless:

The news of the morning came from Citigroup, who said it was expecting third-quarter earnings to drop 60% from a year ago. The primary culprit is a $3.3 billion hit to its securities and banking unit that’s tied to the crisis that seized up the mortgage-securities market a few weeks back.

“Our expected third-quarter results are a clear disappointment,” said Charles Prince, chairman and CEO of Citigroup. “The decline in income was driven primarily by weak performance in fixed-income credit market activities, write-downs in leveraged loan commitments, and increases in consumer credit costs.” TheStreet.com

UBS is also taking its medicine, writing off $3.4 billion and taking a loss after nine years of interrupted growth. The stocks of some regional banks, particularly those with mortgage operations, such as First Horizon (FHN-NYSE) have been punk, but value investors are circling the stocks, many of which have taken nasty markdowns.

With the Dow back at 14,000, perhaps the Fed will not have to move again.

Not everyone has fessed up to credit losses quite yet, but the way the banks are trading today it would appear investors were too pessimistic over their prospects.

And if the Fed sits tight perhaps the dollar will benefit. A nasty reversal in the dollar could trip up trend traders, and could be the latest surprise in a market that seems to spring new ones daily.

Stocks Blow Off Citi’s Warning
TheStreet.com
-----------------------------------------------------------------------------------------------------------------------
The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

Comments:

<< Back to main