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AP
Sector Snap: National Banks
Friday November 16, 1:05 pm ET
Shares of National Banks Continue to Fall on Fears of Housing and Credit Market Deterioration

NEW YORK (AP) -- Shares of national banks continued to decline Friday afternoon on worries the deteriorating housing market and rising defaults on mortgages will pressure earnings in the fourth quarter and into 2008.

Wells Fargo & Co. posted one of the largest declines on the day, after Keefe, Bruyette & Woods Inc. analyst Frederick Cannon cut his rating on the bank to "Underperform" from "Market Perform."

Cannon said that while Wells Fargo is a strong franchise, it is susceptible to the faltering housing market and that in turn will likely lead to more mortgage-related losses.

Shares of San Francisco-based Wells Fargo fell 98 cents, or 3.1 percent, to $30.99 in afternoon trading Friday.

The entire banking sector could be undergoing a transition in how investors price the stocks, adding to the declines.

Banc of America Securities analyst John McDonald said investors could be moving to a price-to-book value model to determine the floor for bank's stock prices from the more traditional price-to-earnings ratio.

McDonald said banks are already trading below two-times book value and could fall closer to the trading values seen during the weak credit cycle in 1991, when banks traded at 0.9 times book value.

"With mark-to-market charges and deteriorating credit driving reduced earnings visibility, investors have begun to look increasingly toward book-based valuations for an indication of the lower bound for the stocks," the analyst wrote in a research note. McDonald added other sectors like homebuilders and mortgage lenders have experienced similar valuation transitions.

Elsewhere, shares of Bank of America Inc. fell 43 cents to $43.65.

Shares of Citigroup Inc. fell 63 cents to $33.95.

JPMorgan Chase & Co. shares fell 46 cents to $42.97.

Wachovia Corp. shares declined $1.13, or 2.8 percent, to $39.15.

Washington Mutual Inc. shares fell 36 cent to $20.07.

http://biz.yahoo.com/ap/071116/national_banks_sector_snap.html?.v=1