Friedman, Billings, Ramsey & Co. analysts on Monday cut their first-quarter earnings estimates for 21 financial institutions because of continued uncertainty in the credit markets.
FBR lowered ratings and reduced price targets due to "expectations for greater credit losses and lower gain-on-sale margins in mortgage banking." Banks are also likely to increase bad debt reserves and take further write-downs during the first quarter, on top of the more than $160 billion the financial services sector has already taken tied to bad bets on mortgages and the ensuing credit market fallout.
The financial institutions sector remains undercapitalized and will likely need to raise new cash, FBR wrote in the research note. FBR also anticipates normalcy in markets not returning until late 2009 or early 2010.
Among the largest cuts, FBR further increased its 2008 loss estimate for IndyMac Bancorp Inc. FBR now expects IndyMac to lose $1.70 per share in 2008, more than double its previous estimate for a loss of 80 cents per share.
Among its largest price target cuts, FBR reduced its targets for both East West Bancorp Inc. and First Community Bancorp by $14 to $16 and $26 respectively.
The only banks FBR did not cut were New York Community Bancorp Inc. _ for which FBR increased its 2008 estimate by 1 cent per share to 96 cents per share _ and TCF Financial Corp. _ for which FBR maintained a 2008 profit estimate at $1.65 per share.
Despite the bearish comments, shares of most financial institutions rose Monday, after JPMorgan Chase & Co. raised its offer for Bear Stearns Cos. to $10 per share from $2.
Shares of IndyMac rose 20 cents, or 4 percent, to $5.20 in afternoon trading. Shares of East West rose 60 cents, or 3.1 percent, to $19.80.
First Community shares rose $1.59, or 5.7 percent to $29.53. New York Community shares fell 14 cents to $18.84.
Shares of TCF Financial rose 52 cents, or 2.6 percent, to $20.68.
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