Downgrades in Regional Banking Sector Punish Stock Market

Posted by Patrick O'Connor on 6/17/08 11:51 am

U.S. stocks resumed their declines today after Goldman Sachs downgraded regional banks and estimated that U.S. banks in general will have to raise another $65 billion in capital to counter more anticipated losses and writedowns.

The following was pulled from Bloomberg.com:

Regional Banks Tumble

Zions, the lender with operations in 10 Western U.S. states, tumbled 8.6 percent to $33.95 for the steepest decline in the S&P 500. "Weakness'' in residential construction and land values in the Southwest will harm loans and is "expected to persist into 2009,'' Zions said in a presentation attached to a regulatory filing today.

Goldman analysts led by New York-based Richard Ramsden said investors should sell regional banks such as Marshall & Ilsley Corp., on its "conviction sell'' list, and buy trust banks such as Bank of New York Mellon Corp. and State Street Corp., on the firm's "conviction buy'' list.

Marshall & Ilsley, Wisconsin's biggest bank, fell 3.4 percent to $18.55, a seven-year low. All 12 regional banks in the S&P 500 declined.

$65 Billion More

Large lenders also declined. The Goldman analysts said U.S. banks may need to raise $65 billion in additional capital as losses and writedowns continue into the first quarter of 2009. Declining home prices, expected to continue falling through the year, are driving the deterioration in the credit markets, Goldman said.

Bank of America Corp. lost 73 cents to $29.59. JPMorgan Chase & Co. retreated 55 cents to $39.39. American Express Co., the biggest U.S. credit-card company, fell 3 percent to $43.32 after Friedman Billings Ramsey & Co. recommended investors sell the shares.

Goldman expects the banking sector to turn around in Q1 2009.

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