Financial Stocks Decline Broadly On Europe, Korea Fears
May 25 2010 - 10:42AM
Dow Jones News
Financial stocks were broadly lower Tuesday amid a global
selloff on worries about continued euro zone woes, including the
impact of the Bank of Spain's bailout of savings bank CajaSur, as
well as tensions between North and South Korea.
The sector has been battered in recent weeks, pausing to catch
its breath just a few times, as European debt woes and uncertainty
around financial regulations in the U.S. have weighed on stocks.
Some of that uncertainty was removed last week when the U.S. Senate
passed its version of a regulatory bill, providing a little more
clarity to investors.
"The market is a constant balance between greed and fear,"
Sandler O'Neill analyst Jeffery Harte said, and fear about risky
assets is growing. Until that risk appetite rebounds, there are
more sellers than buyers in the market.
Citigroup Inc. (C) led declines among the big U.S. banks,
falling 4% to $3.63. Bank of America Corp. (BAC) fell 2.7% to
$14.99, Morgan Stanley (MS) dipped 2.8% to $25.04, J.P. Morgan
Chase & Co. (JPM) slid 2.3% to $37.74 and Goldman Sachs Group
Inc. (GS) slipped 0.8% to $135.52.
The declines in financial stocks came amid a broad market
selloff. The financial sector of the S&P 500 slipped 2.4% in
recent trading, while the broader index was off 2.3%.
Global markets remained focused on Spain, after a plan to
consolidate the Spanish savings-bank sector was submitted to the
Spanish government and on tensions in Korea after Kim Jong-il
ordered the North Korean military to be ready for combat. Political
tensions between North and South Korea have risen since a team of
international investigators concluded that Pyongyang was to blame
for the deadly sinking of a South Korean naval warship in
March.
Sanford C. Bernstein analyst Brad Hintz said the market is
wondering what the impact of problems at Spanish savings banks will
be at other counterparties in Europe and around the world. Europe
has come a long way in addressing its problems, but there are still
unaddressed issues out there, he said.
"The market will rightfully panic for a bit," Hintz said, and
there will likely be a lot of flow into U.S. Treasurys, but in the
end, the big U.S. banks and the big European banks like UBS AG
(UBS, UBSN.VX), Credit Suisse Group (CS, CSGN.VX), Deutsche Bank AG
(DB, DBK.XE) and Barclays PLC (BCS, BARC.LN) will survive.
An economic recovery is inevitable--that isn't the issue, he
said. The issue is the timing of a recovery, and it looks like
retail investors and the asset management industry might take
longer than expected to bounce back.
UBS recently fell 4.3% to $12.61, while American depositary
shares of Credit Suisse declined 4% to $37.13. Deutsche Bank
declined 3.8% to $55.81 and Barclays' ADSs dropped 6.1% to
$15.96.
Harte said the fundamentals of most U.S. banks don't warrant the
sharp declines in their shares over the past few weeks, and thinks
some are getting really attractive, citing Citi, which trades below
tangible book value, and has clearly improving credit trends.
Goldman Sachs trades at 1.2 times tangible book value, he said,
which means the stock is pricing like forward earnings are going to
be less than half the current consensus, an argument he disagrees
with.
Other financial stocks also declined, with insurer American
International Group Inc. (AIG) falling 6.5% to $32.32 despite
comments from Prudential PLC's (PUK, PRU.LN) chairman saying the
"vast majority" of Prudential's shareholders support its planned
$35.5 billion purchase of AIG's Asian life-insurance business. A
shareholder vote is set for June 7. Prudential PLC's ADSs fell 3.1%
to $14.60.
Standard & Poor's equity analyst Cathy Seifert said AIG's
decline is likely because it's a very volatile stock in what's
shaping up to be a very volatile market Tuesday. Seifert cut her
target price on AIG to $38 Monday. She said the stock may be
somewhat priced for a recovery, and though it does have large
overseas exposure, Tuesday's move is likely due to volatility.
Other insurers such as Genworth Financial Inc. (GNW), Assured
Guaranty Ltd. (AGO) and Protective Life Corp. (PL) also fell.
Genworth declined 4.7% to $13.69, Assured Guranty dropped 5.7% to
$14.03 and Protective Life fell 5.1% to $19.07.
-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353;
kerry.benn@dowjones.com
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