Big US Banks in Malaise, Cut to "Unfavorable"

by Mike Bevel, CollectionIndustry.com

Prudential Equity Group LLC analyst Michael Mayo, armed with an “unfavorable” stamp, has wreaked havoc on the U.S. large-capitalization banking sector, downgrading them further from “neutral.”

The downgrade came less than six months after Mayo had upgraded large banks, the first time in nearly seven years he had not been bearish on the sector, according to a Reuters story.

The unfavorable-stamping didn’t come out of nowhere. Many banks, including Citigroup Inc. and Wachovia Corp. disappointed investors this week with lower-than-expected third-quarter revenue.

A convergence of long- and short-term interest rates has resulted in a "flat" — and in places "inverted" — yield curve, Reuters’s report continued, squeezing many banks' margins. Consumer banking growth is slowing, and some banks reported weakness in investment banking.

Mayo expects banks to underperform the broader market. "The bank group remains close to its all-time high, seemingly given expectations for both lower interest rates and still strong credit quality, a combination that seldom occurs," he wrote.