Citigroup Inc among biggest S&P 500 losers

Citigroup Inc, Marshall & Ilsley Corp and Huntington Bancshares Inc ended 2009 with the biggest drops in the Standard & Poor’s 500 Index, weighed down by defaulting property loans that may add to their declines this year.

Marshall & Ilsley tumbled 60 per cent, the index’s biggest drop. Huntington Bancsharesfell 52 per cent, Citigroup dropped 51 per cent and Zions Bancorporation declined 48 per cent. Banks accounted for seven of the 10 worst performers in the index.

“The problem is primarily capital, dilution and credit,” said Gary Townsend, president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. “There are still questions that remain with respect to the solvency of many banks, and those undoubtedly are the ones in which investors have the greatest concerns.”

US banks are struggling to stem losses on commercial real estate loans as the worst recession in 60 years makes it difficult for business owners to pay off debts. Regulators closed 140 lenders last year, the most since 1992, and analysts predict 1,000 banks may fail in the next few years.

Marshall & Ilsley, Wisconsin’s biggest bank, is buckling under housing and construction loan defaults in Florida and Arizona, among states with high 2009 foreclosure rates. The Milwaukee-based lender has reported four straight quarterly losses, and said it set aside as much as $578.7 million to cover bad loans in the third quarter.

Commercial real estate
“The worst of Arizona and Florida problems are now behind them,” Tony Davis, an analyst with Stifel Nicolaus & Co, said December 30. “Having taken $160 million in charge-offs in their correspondent banking division, the heavy lifting in that portfolio probably has also been completed.”

At Salt Lake City-based Zions, about $1.1 billion, or 59 per cent, of $1.8 billion in total non-accrual loans in the third quarter were in commercial real estate, the lender said in October. “We feel a whole lot more comfortable heading into 2010 than we did heading into 2009,” spokesman James Abbott said in a December 30 interview. Zions Chief Executive Officer (CEO) Harris Simmons bought $2 million in shares in the past four months, Abbott said.

Huntington Bancshares of Columbus, Ohio, has cut its portfolio of troubled commercial real estate loans to a “manageable number,” Stephen Steinour, chief executive officer of the Columbus, Ohio-based bank, said November 18.

Huntington capital
“Huntington raised $1.6 billion in capital and addressed our credit quality issue aggressively,” spokeswoman Maureen Brown said in a December 31 e-mail. “Our efforts have produced three consecutive quarters of improved pretax, pre-provision income giving us confidence that we are positioning the company for better performance once this credit cycle ends.”

Marshall & Ilsley spokeswoman Sara Schmitz didn’t return a telephone call seeking a comment.

“Regional banks have an above average amount of risk to commercial real estate, and that’s clearly where the markets have some concerns,” Oppenheimer & Co analyst Terry McEvoy said in a December 30 interview.

Citigroup, which had a $27.7 billion loss for 2008, in December joined Wells Fargo & Co and Bank of America Corp in raising cash to escape limits tied to “extraordinary financial assistance” from the government.

Citigroup shares
The New York-based bank sold $17 billion in shares at $3.15 each, less than the $3.25 the US paid to acquire a one-third stake in September, prompting the Treasury to delay selling its shares for at least 90 days. Citigroup ended a loss-sharing agreement with the government.

Citigroup spokeswoman Danielle Romero-Apsilos, declined to comment.

Banks sold preferred shares to the government and common shares to investors to cover commercial and residential real estate losses and ensure capital levels exceeded regulatory thresholds.

“At the end of the day these banks were undercapitalized and it was the dilutive effect of stock issuance that weighed on the equity prices the most,” said William Fitzpatrick, an analyst at Racine, Wisconsin-based Optique Capital Management, which oversees about $900 million.

Marshall & Ilsley, which accepted $1.72 billion from the US Troubled Asset Relief Programme (Tarp) last year, doubled the number of shares outstanding in 2009, McEvoy said. Citigroup’s outstanding shares doubled in July and again in September as $58 billion of preferred shares held by the US were converted into common stock.

Banks slump
Bank stocks slumped as the S&P 500 rose 23.5 per cent for 2009. The index climbed more than 63 per cent from an almost 13- year low on March 9, when Berkshire Hathaway Inc’s Warren Buffett said the economy had “fallen off a cliff.” Among the winners: XL Capital Ltd, the Bermuda-based insurer and reinsurer that posted an almost 400 per cent gain as it returned to profitability.

Other US banks benefited from government support through Tarp. The KBW Bank Index of 24 national and regional lenders climbed almost 130 per cent after touching a low on March 6. Dallas-based Comerica Inc. climbed about 49 per cent last year, and New York-based JPMorgan Chase & Co rose 32 per cent — the year’s two best performers in the bank index.

“You saw a divergent performance in 2009 and I tend to think that’s what we’ll get in 2010 as well,” Fitzpatrick said. “It’s just a matter of how bad credit gets and whether unemployment stabilizes.”

Performance returns include companies tracked by the S&P 500 at year-end. Among 29 firms removed in 2009 was CIT Group Inc, the commercial lender whose stock was wiped out when the firm went bankrupt, and MBIA Inc, the mortgage insurer removed two weeks before the end of the year.