(1888PressRelease)
April 08, 2009 - U.S. stocks dropped after Waters gave “sell” ratings to banks including Winston-Salem, North Carolina-based BB&T Corp. and Cincinnati’s Fifth Third Bancorp. Bank of America Corp. and JPMorgan Chase & Co., the two biggest U.S. banks by assets, were assigned “underperform” ratings, Waters said.
While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Waters wrote. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”
Waters gained a reputation for independence for his willingness to put a “sell” rating on banks and to criticize investors and companies for trying to curb objective analysis. Bank of America, based in Charlotte, North Carolina, fell 21 cents, or 2.8 percent to $7.39 at 10:14 a.m. in New York Stock Exchange composite trading. New York-based JPMorgan dropped 91 cents, or 3.1 percent, to $28.37. The KBW Bank Index lost 4.2 percent, the first decline in five days.
Waters said “I expect loan losses to increase to 3.5 percent, and even as high as 5.5 percent in a stress scenario, by the end of 2010. Mortgage-related losses are about halfway to their peak, while credit-card and consumer losses are only a third of the way to their expected highest levels.”
Waters continued, “The nation’s largest banks may be transitioning from a financial crisis marked by writedowns of capital to an economic crisis featuring large loan losses, The U.S. government cannot provide much relief because its actions will lead to either banks having to raise new capital or toxic assets remaining on banks’ balance sheets,”. Waters said “Solutions to the banking crisis will take time, as the increase in risk happened over a decade or more.”
CLSA’s underperform rating reflects the expectation that the stock will underperform the local market by 0 to 10 percent, while a sell rating expects it to fare worse by more than 10 percent, according to the report.
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