NEW YORK (Reuters) - U.S. bank stocks tumbled on Monday on expectations that a deepening global economic slump will reduce employment, crimp borrowers' access to credit and spur more writedowns.
Citigroup Inc
Shares fell after the Institute for Supply Management said U.S. factory activity fell in November to its lowest level since 1982, while the Commerce Department said U.S. construction spending in October declined by a larger-than-expected 1.2 percent.
Meanwhile, analysts offered an increasingly dire outlook for U.S. banks, which have already suffered several hundred billion dollars of loan losses and writedowns since the middle of 2007. Goldman Sachs and Morgan Stanley in September became bank holding companies.
Fox-Pitt Kelton analyst Albert Savastano, who rates the sector "underweight," wrote that increased writedowns on investments could offset some of the capital injections from the U.S. government's $700 billion bank bailout.
Richard Bove, a Ladenburg Thalmann & Co analyst, cut his earnings forecast for Citigroup, saying the U.S. unemployment rate could reach 10 percent in 2009 and push loan losses higher, and that $45 billion of government capital injections might allow the bank to write off assets more aggressively.
Oppenheimer & Co analyst Meredith Whitney, among the earliest to turn bearish on the sector, said she expects lenders to pull more than $2 trillion of credit lines over the next 18 months, with severe consequences for U.S. consumers.
"While just over 70 percent of U.S. households have credit cards, over 90 percent of those households revolve credit at some point during the year, or in other words use credit card lines as a cash management vehicle," she wrote. "We view the credit card as the second key source of consumer liquidity, the first being their jobs. Pulling credit at a time when job losses are increasing by over 50 percent year on year in most key states is a dangerous and unprecedented combination."
In afternoon trading, Citigroup was down $1.12, or 13.5 percent, at $7.17; Bank of America was down $1.67, or 10.3 percent, at $14.58; Merrill, which Bank of America is buying, was down $1.56, or 11.8 percent, at $11.66; Goldman Sachs was down $10.99, or 13.9 percent, at $68.00; and Morgan Stanley was down $2.42, or 16.4 percent, at $12.33.
(Reporting by Jonathan Stempel; editing by John Wallace)
