Banks facing tough Q4: J.P. Morgan
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Although she left her ratings on all unchanged at "market perform," Murray cut her fourth quarter earnings per share forecast for Citigroup to 69 cents from 75 cents; for FleetBoston to 57 cents from 65 cents; for KeyCorp to 54 cents from 58 cents; and for PNC Financial to 91 cents from $1.00.
The Citigroup (C: news, chart, profile) cuts reflect Murray's expectations for losses related to Enron and Argentina, which she believes are unlikely to be offset because of credit, volume and other pressures in its other businesses. Murray believes Citi will incur a loss of one to two cents a share on its portion of Argentine debt that is subject to restructuring and that Enron will shave three to six cents off the company's bottom line. Worst case, she believes the Enron exposure could be 9 cents a share.
Murray also believes that FleetBoston's losses related to Argentine debt will not be offset, estimating that FleetBoston (FBF: news, chart, profile) will book a loss of six to 9 cents a share on its $360 million of debt that is subject to restructuring. She also thinks FBF may take an additional write-down on its $1.7 billion direct investment private equity portfolio.
For KeyCorp (KEY: news, chart, profile) and PNC Financial (PNC: news, chart, profile), however, the lowered estimates are based on the expectation they will take "significant" charges to build loan loss reserves and/or exit portfolios. Murray is unsure, however, as to the timing or amount of the charges.
"We have assumed that PNC will take the same haircut, about 5.5 percent, on the remaining $1.9 billion of loans designated for exit as we estimate it has taken year-to-date on the $1.6 billion it has already exited," Murray told clients. The charge could be higher, she said, if PNC decides to increase the amount of the loans designated for exit, as she expects.
Another risk to her fourth quarter estimate, she said, are the company's venture capital activities, for which the company is evaluating strategic alternatives and has posted losses for three consecutive quarters.
Murray expects KeyCorp to take a $30 million dollar addition to the loan loss reserve earmarked for loans designated for exit and also thinks it is likely it will take a special provision of $80 to $150 million beyond the $110 million to $120 million "normal" provision she already had modeled.
Shares of Citigroup dropped 70 cents, or 1.5 percent, to $47.45; KeyCorp slid 38 cents, or 1.6 percent, to $23.15 and PNC fell $1.03, or 1.8 percent, to $56.13 but FleetBoston edged up 10 cents, or 0.3 percent to $37.20
cbs.marketwatch.com
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