Bank stocks continued a precipitous decline Tuesday, raising questions about where they'll hit bottom.
Charlotte-based Wachovia Corp. lost about 8 percent in its share price, closing at $9.08 after a day where shares dipped below $8 in morning trading. The bank's shares have fallen 31 percent since Thursday, chief executive Bob Steel's first full day on the job. A year ago, the shares were trading around $52.
“I don't think anybody pictured it like this,” said Tim Vorick, who's been a shareholder for 20-plus years and says he's sticking with the stock. Vorick, 65 and a resident of Valrico, Fla., estimates he's lost $250,000 on Wachovia shares since late last year.
Many Wachovia analysts think the stock will top out at $15 or less in the next year, including Morgan Stanley (which set a 12-month price target of $12), UBS ($12.50) and Merrill Lynch ($14).
Gerard Cassidy, an analyst at RBC Capital Markets, predicted that Wachovia shares will reach $13 in the next year. But he cautioned that shares could trade as low as the mid single digits if the U.S. experiences a recession in line with that of the early 1980s or 1990s.
Wachovia's falling stock price has fueled speculation that the bank could be bought out. But Stuart Plesser, an equity banking analyst at the S&P, cautioned in an interview Tuesday that a company mired in bad loans can be a tough sell, even at a bargain-basement price. Plesser expects the stock to reach $8 within the next 12 months.
To be sure, it's a bad time for most financial stocks, battered by the fallout from subprime mortgages, rising loan losses, and jittery investors. Wachovia's cross-town rival, Bank of America Corp., also closed down 8 percent on Tuesday, to $18.52. A year ago, it was trading around $50 per share.
Merrill Lynch & Co. and Citigroup Inc. – which, like Wachovia, have brought in new CEOs to turn around the companies – are both down about 70 percent over the year. National City Corp. closed at $3.60 Tuesday – a tenth of its value compared with a year ago.
Wachovia issued a statement Tuesday saying the Charlotte bank “is a fundamentally strong and stable company on solid footing.”
“Many of our businesses continue to experience strong underlying performance, and we remain focused on serving our customers well,” the company said. “Our teams are prepared to help customers navigate this difficult environment. We are intensely focused on maintaining excellent service to customers, and we are winning new business every day. In fact, Wachovia opened 17,000 new checking accounts and generated $800 million in new deposits on Monday.”
But Wachovia's shares have lost 83 percent of their value over the past 12 months, and are trading at less than a third of their book value. That measure – basically, what the company would be worth if it were liquidated - is around $36, stable over the year.
However, the bank's ratio of price to book value has fallen to about .25. It was .75 at the end of the first quarter, and 1.51 the year before that.
Another concern for financial stocks is short selling, a way for investors to profit when stocks go down. Over the years, short sellers have faced accusations of spreading rumors about companies to help push their shares down. The Securities and Exchange Commission is investigating such claims about trading in shares of Bear Stearns Cos. and Lehman Brothers Holdings Inc., and on Tuesday announced a new crackdown on the practice.
Short sellers, one trader said, are like hyenas: “They don't attack the live animals – they go after the wounded animals.”
A recent worry has been the elimination of a rule that required short sellers to make their trades only after an “uptick” in the shares. A number of studies, however, had showed that rule had no effect on the volatility of stocks, said James Cox, a law professor at Duke University.
For example, of Wachovia's 2 billion-plus shares, about 11 percent are currently being shorted, a relatively high number for a large company.
For potential shareholders, some analysts and advisers recommend waiting until Wachovia lays out a turnaround plan before investing in the company. Joe Gordon, at Gordon Asset Management in the Raleigh area, said he won't recommend Wachovia shares until the company reveals how big of a hit it expects to take on the 2006 purchase of mortgage lender Golden West Financial Corp.
“We have clients e-mailing us, ‘Doesn't Wachovia look tempting at this price?'” Gordon said. “We would e-mail back, ‘No.' … The board needs to start operating with a sense of transparency that they've never practiced.”
Nancy Bush, an analyst at NAB Research in New Jersey, called Wachovia shares “not a stock for the faint of heart.”
“If you do not have a VERY long view, get out,” she wrote in a note issued Thursday. “Otherwise, HOLD.”
Plesser, at the S&P, has a “sell” recommendation on Wachovia. “I just don't see this kind of recovery from what they have on their books,” Plesser said. “Things will get worse before they get better – if they get better.”
Wachovia announces second-quarter earnings on Tuesday. It expects a loss of some $2.8 billion, not including a noncash accounting charge.
Staff writer Rick Rothacker contributed.
Bank stocks continued a precipitous decline Tuesday, raising questions about where they'll hit bottom.
Charlotte-based Wachovia Corp. lost about 8 percent in its share price, closing at $9.08 after a day where shares dipped below $8 in morning trading. The bank's shares have fallen 31 percent since Thursday, chief executive Bob Steel's first full day on the job. A year ago, the shares were trading around $52.
“I don't think anybody pictured it like this,” said Tim Vorick, who's been a shareholder for 20-plus years and says he's sticking with the stock. Vorick, 65 and a resident of Valrico, Fla., estimates he's lost $250,000 on Wachovia shares since late last year.
Many Wachovia analysts think the stock will top out at $15 or less in the next year, including Morgan Stanley (which set a 12-month price target of $12), UBS ($12.50) and Merrill Lynch ($14).
Gerard Cassidy, an analyst at RBC Capital Markets, predicted that Wachovia shares will reach $13 in the next year. But he cautioned that shares could trade as low as the mid single digits if the U.S. experiences a recession in line with that of the early 1980s or 1990s.
Wachovia's falling stock price has fueled speculation that the bank could be bought out. But Stuart Plesser, an equity banking analyst at the S&P, cautioned in an interview Tuesday that a company mired in bad loans can be a tough sell, even at a bargain-basement price. Plesser expects the stock to reach $8 within the next 12 months.
To be sure, it's a bad time for most financial stocks, battered by the fallout from subprime mortgages, rising loan losses, and jittery investors. Wachovia's cross-town rival, Bank of America Corp., also closed down 8 percent on Tuesday, to $18.52. A year ago, it was trading around $50 per share.
Merrill Lynch & Co. and Citigroup Inc. – which, like Wachovia, have brought in new CEOs to turn around the companies – are both down about 70 percent over the year. National City Corp. closed at $3.60 Tuesday – a tenth of its value compared with a year ago.
Wachovia issued a statement Tuesday saying the Charlotte bank “is a fundamentally strong and stable company on solid footing.”
“Many of our businesses continue to experience strong underlying performance, and we remain focused on serving our customers well,” the company said. “Our teams are prepared to help customers navigate this difficult environment. We are intensely focused on maintaining excellent service to customers, and we are winning new business every day. In fact, Wachovia opened 17,000 new checking accounts and generated $800 million in new deposits on Monday.”
But Wachovia's shares have lost 83 percent of their value over the past 12 months, and are trading at less than a third of their book value. That measure – basically, what the company would be worth if it were liquidated - is around $36, stable over the year.
However, the bank's ratio of price to book value has fallen to about .25. It was .75 at the end of the first quarter, and 1.51 the year before that.
Another concern for financial stocks is short selling, a way for investors to profit when stocks go down. Over the years, short sellers have faced accusations of spreading rumors about companies to help push their shares down. The Securities and Exchange Commission is investigating such claims about trading in shares of Bear Stearns Cos. and Lehman Brothers Holdings Inc., and on Tuesday announced a new crackdown on the practice.
Short sellers, one trader said, are like hyenas: “They don't attack the live animals – they go after the wounded animals.”
A recent worry has been the elimination of a rule that required short sellers to make their trades only after an “uptick” in the shares. A number of studies, however, had showed that rule had no effect on the volatility of stocks, said James Cox, a law professor at Duke University.
For example, of Wachovia's 2 billion-plus shares, about 11 percent are currently being shorted, a relatively high number for a large company.
For potential shareholders, some analysts and advisers recommend waiting until Wachovia lays out a turnaround plan before investing in the company. Joe Gordon, at Gordon Asset Management in the Raleigh area, said he won't recommend Wachovia shares until the company reveals how big of a hit it expects to take on the 2006 purchase of mortgage lender Golden West Financial Corp.
“We have clients e-mailing us, ‘Doesn't Wachovia look tempting at this price?'” Gordon said. “We would e-mail back, ‘No.' … The board needs to start operating with a sense of transparency that they've never practiced.”
Nancy Bush, an analyst at NAB Research in New Jersey, called Wachovia shares “not a stock for the faint of heart.”
“If you do not have a VERY long view, get out,” she wrote in a note issued Thursday. “Otherwise, HOLD.”
Plesser, at the S&P, has a “sell” recommendation on Wachovia. “I just don't see this kind of recovery from what they have on their books,” Plesser said. “Things will get worse before they get better – if they get better.”
Wachovia announces second-quarter earnings on Tuesday. It expects a loss of some $2.8 billion, not including a noncash accounting charge.
Staff writer Rick Rothacker contributed.
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