Undettered by death threats, CIBC Whitney downgrades US based large cap banking sector
ONG KONG, Nov 12 (Reuters) - CIBC World Markets, whose recent downgrade of Citigroup (C.N: Quote, Profile, Research) sparked a broad market sell-off, cut its rating on big U.S. banks to "sector underweight" from "market weight", saying capital ratios face a "material drop" in the fourth quarter in the wake of the credit crisis.
"We believe there is another leg down for bank stocks as investors shift their focus from the massive write-downs due to credit-related exposure to the severe impact that these write-downs and securities-related downgrades will have on many of the banks' risk-weighted assets and capital ratios," CIBC wrote in a report dated on Sunday.
In the note, CIBC analysts Meredith Whitney and Carla Krawiec also cut their earnings forecasts for Citigroup and Wachovia Corp (WB.N: Quote, Profile, Research) for the years 2007 to 2009.
CIBC said it continues to believe that Citigroup "is at precariously low capital levels that will force the company to sell assets, raise capital, and cut its dividend. Our concern over C (Citigroup) and the probability of its stock falling below $30 a share mounts by the day," they wrote.
Citigroup shares have lost nearly 41 percent since the start of the year, and closed on Friday at $33.10.
CIBC predicted that large-cap U.S. banks, including Citigroup, Wachovia, Bank of America (BAC.N: Quote, Profile, Research), JPMorgan (JPM.N: Quote, Profile, Research) and Wells Fargo & Co (WFC.N: Quote, Profile, Research), will on average trade at 10 to 11 times forward earnings, at most.
CIBC cut its earnings forecast for Citigroup for the current year to $2.31 a share from $2.39. For 2008 it lowered its Citigroup forecast to $3.25 from $3.75, and cut its 2009 forecast to $3.60 from $4.10.
For Wachovia, CIBC lowered its earnings per share forecasts to $4.19 from $4.52 for this year, to $4.50 from $5.13 for 2008, and to $5.05 from $5.50 in 2009.
Whitney's downgrade on Oct. 31 of top U.S. bank Citigroup roiled stocks on Nov. 1 and helped send Citigroup shares down nearly 7 percent. |
