Bank stocks slid Tuesday after a Rochdale Securities analyst weighed in on the sector, saying the stocks were running on “fumes” and not reality in their recent run-up.
Over the past couple of weeks, the financial sector saw gains after most announced big second-quarter profits, even though many companies said they are still contending with losses from failed loans.
The impressive numbers included a $3 billion profit announced by Citigroup Inc. and $2.4 billion for Bank of America Corp. Similarly robust earnings also came from Goldman Sachs Group Inc. and JPMorgan Chase & Co.
That the banks managed to turn a profit at all was remarkable. Just 11 months ago, many of them looked to be on the verge of collapse. In recent weeks, the stock market staged a huge rally, driven by the signs of health in banking.
But financial stocks saw some of the steepest losses after analyst Richard Bove wrote in a research note that bank earnings won’t improve in the third or even the fourth quarter.
He echoed the sobering words of Bank of America CEO Ken Lewis who told analysts last month that, “Profitability in the second half of the year will be much tougher than the first half.”
Shares of Bank of America slid 67 cents, or 4 percent, to $16.01 in afternoon trading Tuesday.
In his note, Bove said many companies will post future losses and said investors should lock in profits after a surge in bank stocks since early March.
“The rational investor would step away from psychology at this point and take some profits,” he wrote.
Still, he says the sector is attractive long-term.
Shares of Citigroup fell 23 cents, or 5.8 percent, to $3.71. The New York-based bank on Tuesday said it approved $6 billion in new lending initiatives during the second quarter as part of its programs supported by government bailout funds.
JPMorgan Chase also fell sharply, down 99 cents, or 2.3 percent, to $41.70.
Goldman Sachs bucked the trend, gaining 44 cents to $160.80.
Copyright 2009 The Associated Press.