Sector Snap: Banks mixed as credit issues persist

NEW YORK — Bank stocks were mixed Monday as analysts weighed in on recent earnings reports, forecasting higher loan losses through the rest of the year, especially among regional banks.

Bank of America Corp. shares faltered after a Fox-Pitt Kelton analyst cut his rating on the bank to "In Line" from "Outperform." Shares dropped 61 cents, or 4.7 percent, to $12.28 in midday trading.

Shares of Citigroup Inc., meanwhile, tumbled nearly 8 percent, losing 24 cents to $2.78.

Both Bank of America and Citigroup joined other major U.S. banks in reporting a better-than-expected second-quarter profit on Friday, but losses from failed loans continued to rise. Both banks got a boost from the sale of certain assets, as well as from improved trading activity.

Fox-Pitt analyst Andrew Marquardt believes Bank of America will likely struggle throughout the remainder of the year to generate positive earnings on a core basis, minus one-time gains and other extraordinary items, due to ongoing weakness in credit.

Subsequently, Marquardt slashed his full-year estimate to a loss of 46 cents per share from a profit of 48 cents per share. He also cut his price target on the stock to $13 from $17. Analysts surveyed by Thomson Reuters, on average, are calling for earnings of 72 cents per share for the year.

Marquardt also said it appears the bank won't be in a position to repay $45 billion in government bailout loans anytime soon, given the losses expected in the second half of the year.

Goldman Sachs Group Inc. set the stage early last week with its solid earnings report, soon to be followed by JPMorgan Chase & Co.

Goldman, JPMorgan, Bank of America and Citigroup all profited handsomely from their trading businesses as the financial markets improved during the second quarter.

As such, Rochdale Securities analyst Richard Bove said Monday that he remains a buyer of banks with a strong capital market presence, but that he is steering clear of regional banks that are likely to see their earnings hurt by the ongoing recession.

"My theory continues to be that the financial markets have reopened, allowing capital market-oriented banks to develop positive results," Bove wrote in a note to clients. "And, the economy is still in recession, pressuring the results of traditional banks."

Bove noted that regional banks First Horizon National Corp. and Marshall & Ilsley Corp. have both reported sizable losses.

First Horizon shares added 24 cents to $12.33 after dropping nearly 5 percent on Friday. Marshall & Ilsley sank more than 5 percent on Monday, losing 27 cents to $4.36.

Still, other regionals were higher. Zions Bancorp jumped 47 cents, or 4.1 percent, to $12.03 ahead of its quarterly report following the market's close. Fifth Third Bancorp added 12 cents to $7.13.

Among other gainers Monday, Morgan Stanley rose 59 cents, or 2.1 percent, to $28.58, while Wells Fargo & Co. rose 82 cents, or 3.3 percent, to $25.82. Both banks report quarterly results on Wednesday.

Goldman Sachs rose $3.61, or 2.3 percent, to $160.45.