(Updated to add comments from professor in the eighth and ninth paragraphs; updated stock prices.)
By Lynn Cowan, Maxwell Murphy and Jessica Papini Of DOW JONES NEWSWIRES It isn't just Citigroup Inc. (C) that's getting shellacked in the stock market.
All eyes are focused on Citigroup. Its board met Friday to weigh what, if anything, can be done about its shrinking stock price. Shares closed Friday at $3.77, down 94 cents, or 20%. At that level, the entire bank is valued at less than the $25 billion injection of capital from the U.S. Treasury Department.
But other major U.S. banks - all of them blessed previously with money from TARP, and all of them, presumably, too big to fail - are also being pummeled in the market. JPMorgan Chase & Co. (JPM) 66 cents, or 2.8%, to $22.72; Bank of America Corp. (BAC) lost 22 cents, or 2%, to $11.47; and Wells Fargo Corp. (WFC) gave back 77 cents, or 3.4%, to $21.76. All are trading at prices far below the ones in mid-September, when the financial crisis hit a previous peak and two major Wall Street firms succumbed to investor fear.
Investor misgivings about the current direction of the Treasury Department's Troubled Assets Relief Program, or TARP, have many stocks trading in a range that is worse than before the government bailout plan was announced.
Banks still have huge write-downs looming: In the next four years, according to Barclays Capital head of U.S. Fixed Income Strategy Ajay Rajadhyaksha, U.S. commercial banks will suffer losses of $656 billion. That includes $239 billion on second-lien mortgages, and $69 billion on credit cards, among other problem areas.
"Investors are realizing that TARP doesn't solve the problem, it just keeps the wheels on," said an investment strategist at a money-management firm who didn't want to be named. "TARP just allows companies to not go out of business. It doesn't make the bank valuable or help them write down bad assets."
Indeed, TARP is only just filling the hole that losses next year will create. According to Barclays, commercial-bank losses in 2009 alone are expected to be $253 billion, or roughly the size of the first tranche of TARP money.
At one time, TARP was supposed to help banks write down bad assets by buying them, but no longer.
Fears of further asset write-downs and dissatisfaction with the Treasury Department's decision not to purchase troubled assets from banks are weighing heavily on the sector, said Len Blum, a managing director at investment-banking boutique Westwood Capital who owns preferred shares of Citigroup. Investors who lived through the domino-like pressure that affected Bear Stearns, Lehman Brothers Holdings Inc. (LEHMQ) and Merrill Lynch & Co. (MER) are treating all bank stocks in the current environment as potential Citigroup clones.
"There's a growing realization that there could be a lot more write-offs" to come in the wake of Citigroup's announcement this week that it will take a $1.1 billion write-down to reflect the depressed values of assets it is buying from its structured investment vehicles, says Blum.
Banks have been hit hard since the Treasury's decision last week to drop its original plan to purchase troubled assets from financial companies and instead focus on taking equity stakes in the companies themselves.
"Investors were hoping that Citigroup could sell a lot of these assets to the government, and then the program changed - it's not going to be buying [these assets]," Blum said.
JPMorgan, the bank that was chosen by the government to take over Bear Stearns in March, and that picked up the pieces of Washington Mutual in September, has fallen around 50% since Sept. 12. At its Friday close of $22.72, it trades for only a fraction of its $36.95 book value as of Sept. 30. Goodwill and intangibles make up about half that book value.
Bank of America, which rescued Merrill Lynch via a takeover agreement in September, has had about two-thirds of its share price shaved off since Sept. 12. At $11.47, it sells for little more than a third of its book value per share on Sept. 30, though goodwill and other intangibles make up perhaps two-thirds of that book value.
Wells Fargo remains Wall Street's favorite bank, but favorite is a relative term: Its shares have lost close to 40% since Sept. 12. At $21.76, its stock actually sells for more than its book value of $14.14 on Sept. 30; perhaps a third of that book value is goodwill and other intangibles.
-By Lynn Cowan, Dow Jones Newswires; 301-270-0323; lynn.cowan@dowjones.com
-By Maxwell Murphy, Dow Jones Newswires; 201-938-5173; maxwell.murphy@dowjones.com
-By Jessica Papini, Dow Jones Newswires; 201-938-2437; jessica.papini@dowjones.com
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(END) Dow Jones Newswires
November 21, 2008 16:55 ET (21:55 GMT)

Publié le 21 novembre 2008 Copyright © 2008 Dowjones