Go for it -g-
By Ed Welsch
Of DOW JONES NEWSWIRES
Sell the rally in financial stocks, analysts at Morgan Stanley told clients Monday, saying more capital raising, dividend cuts and deleveraging are coming across the sector.
Financial stocks rose in last week's trading as momentum investors rotated out of securities seen as safer, such as commodities and U.S. Treasury securities, and into investments that had been shunned, like corporate bonds and financial stocks. Financial stocks in the Standard & Poor's 500 index are up more than 15% from their lows on the March 17 bailout of Bear Stearns Cos. (BSC).
The tentative movement back into risker investments shows that some investors are willing to test the idea that things are looking up for battered financial companies.
But Morgan Stanley analysts Betsy Graseck, Cheryl Pate and Justin Kwong aren't convinced. They believe the difficulties in the credit markets are only in their "3rd inning," and that the situation will be worse than the recessionary environment of 1990 and 1991.
"We think it's a mistake to chase this rally," they wrote. "The risk is much greater that credit deterioration will accelerate and banks will raise more dilutive equity and cut dividends [more] than expected."
The Morgan Stanley analysts predict dividend cuts coming at Bank of America Corp. (BAC), Citigroup Inc. (C), Fifth Third Bancorp (FITB), Keycorp (KEY), SunTrust Banks Inc. (STI), U.S. Bancorp (USB), Wachovia Corp. (WB) and Wells Fargo (WFC). They also expect more capital- raising measures from Citigroup, Fifth Third, Keycorp, PNC Financial Services Group Inc. (PNC), SunTrust, State Street Corp. (STT), Wachovia and Wells Fargo.
-By Ed Welsch, Dow Jones Newswires; 201-938-5244; edward.welsch@dowjones.com |
