The broader financial-services sector got a lift Tuesday after
Citigroup Inc.’s chief executive, Vikram Pandit, said the bank
operated at a profit in January and February. Shares across the
entire financial-services sector rose sharply in afternoon
trading.
The broader financial-services sector got a lift Tuesday after Citigroup Inc.’s chief executive, Vikram Pandit, said the bank operated at a profit in January and February. Shares across the entire financial-services sector rose sharply in afternoon trading.
“Historically, they are a bellwether firm,” John Jay, a senior analyst at Aite Group, said of Citi.
The KBW Bank Index, which tracks 24 of the nation’s largest banks, jumped 12.8 percent to 22.11 Tuesday afternoon. The KBW Insurance index, which tracks 24 insurers, jumped 7.2 percent to 46.66.
The financial-services sector rallied throughout the day after Pandit said the embattled bank was profitable through the first two months of the year on a pretax basis, excluding certain items such as potential write-downs and loan-loss provisions.
“Today, it’s mostly about Citi,” said Scott Valentin, a managing director at Friedman, Billings, Ramsey & Co. Citi’s expansive operations touch nearly every part of the financial-services sector, Valentin noted. The New York-based bank’s ability to show it can operate at a profit with such diverse businesses is a positive indication that others that operate in each part of the financial-services sector might also be faring better than expected, he added.
Shares of Citi jumped 35 cents, or 33.3 percent, to $1.40.
Citi has been among the hardest hit banks by the ongoing credit crisis, posting five consecutive quarterly losses. It has been forced to take tens of billions of dollars in write-downs and loan losses since late in 2007 as the value of its investments plummet and more customers fall behind on repaying loans.
Late last month, Citigroup and the Treasury Department agreed on a deal that will give the government up to a 36 percent stake in Citi. The government, along with other private investors, will convert some of their $45 billion in preferred stock into common shares.
Among other national banks, shares of Bank of America, which has also been hit hard by the credit crisis, jumped 96 cents, or 25.6 percent, to $4.71. Shares of Wells Fargo & Co., which has been considered among the safer banks during the crisis, rose $1.49, or 14.9 percent, to $11.46.
Credit-card lenders, of which Citi is a major player, also jumped. Shares of American Express Co. rose $1.23, or 11.6 percent, to $11.87. Shares of Capital One Financial Corp. jumped $1.07, or 12.3 percent, to $9.80.
Not all analysts, though, believed Citi was the primary driver of Tuesday’s surge. Fred Cannon, chief equity strategist at Keefe, Bruyette & Woods Inc. said the Citi news might be less of a factor in Tuesday’s rally than investors just seeing bargains after a severe sell-off last week.
“Financials, from any measure, were awfully oversold last week,” Cannon said. The KBW Bank Index tumbled nearly 23 percent last week and hit a record low, while the KBW Insurance Index tumbled nearly 15 percent.
Insurance stocks were rebounding sharply as well Tuesday. Shares of Hartford Financial Services Group Inc. rose $1.08, or 26.3 percent, to $5.18. Shares of MetLife Inc. rose $2.63, or 21.1 percent, to $15.11, despite FBR analyst Randy Binner downgrading the company to “Market Perform” from “Outperform” earlier in the day.
Analysts caution that bounces like Tuesday’s do not necessarily indicate a rally is building for the beaten-down sector, which has taken the brunt of losses since the market peaked in late 2007.
“The sentiment is more positive today, but the question is what will be the sentiment tomorrow,” asked KBW analyst Sanjay Sakhrani, who covers the credit-card sector. “Volatility will continue until we get a sense of where we’re headed from a macro standpoint.”
Broader economic indicators continue to point toward a worsening recession, such as the steady rise in the unemployment rate. Uncertainty about any specific measures the government will take to further support the financial sector have also has sent shares lower.
Cannon said that if the government can provide additional specific details in the coming days about any programs to support the sector, that could turn Tuesday’s surge into a more-sustained rally.
