Continued concern about deterioration in the credit markets has shares of financial-services firms tumbling Thursday, with most slipping more than broader market indexes.
While broader indexes fell between 1.5 percent and 2 percent, many financial-services firms were down even more, such as Assured Guaranty Ltd., which fell 8.2 percent to $19.68 in afternoon trading.
Investment banks and national banks were among the hardest-hit portions of the financial services market Thursday after a Goldman Sachs Group Inc. analyst cut his rating on investment banks to "Neutral" from "Attractive" and placed Citigroup Inc. on "Conviction Sell" list.
Analyst William Tanona cut the view on the banks because "we are hard pressed to find a catalyst that will move the group significantly higher over the next few months as fundamentals continue to deteriorate," he wrote in a research note.
Tanona said Merrill Lynch & Co., with its quarter ending June 30, is likely to face $4.2 billion in write-downs during the second quarter tied to collateralized debt obligations and value adjustments connected to deterioration among bond insurers.
Collateralized debt obligations are complex financial instruments that combine various slices of debt. Investment banks have been cutting their value consistently since the middle of 2007.
Tanona expects Merrill Lynch to lose $2 per share during the second quarter.
Shares of Merrill Lynch fell $1.44, or 4.1 percent, to $34.02.
Merrill Lynch did not immediately return calls seeking comment.
Citigroup is also likely to face further write-downs in the second quarter, Tanona said in the note. The bank will also have to deal with increasing provisions to cover losses in its loan portfolios as a result of "rapidly deteriorating consumer credit trends," Tanona wrote in the note.
Citigroup shares fell $1.06, or 5.6 percent, to $17.79.
Earlier in the session, shares of Citigroup touched a roughly 10-year low of $17.53.
Citigroup declined to comment on Tanona's estimates, as it has a policy of not commenting on analyst reports.
Among other national banks, shares of Washington Mutual Inc. fell the furthest, declining 39 cents, or 7 percent, to $5.15. Earlier in the session, shares hit a 17-year low of $5.05.
Even Discover Financial Services shares tumbled, despite the credit card lender and processor's fiscal second-quarter earnings besting analysts' expectations.
Earlier Thursday, Discover Financial said it earned $234 million, or 48 cents per share, during the quarter ended May 31 thanks to record volumes in its third-party payments business. Analysts polled by Thomson Financial, on average, forecast earnings of 37 cents per share.
Sandler O'Neill & Partners LP analyst Michael Taiano said Discover Financial's delinquencies and charge-off rates for the second quarter were in line with expectations. Charge-offs are loans written off as not being repaid.
Credit card companies have been struggling with rising losses tied to customers not making payments.
Shares of Discover Financial fell 74 cents, or 5.2 percent, to $13.59.
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