AP
Sector Snap: Banks
Tuesday July 24, 1:09 pm ET
By Stephen Bernard, AP Business Writer
Credit Worries Continue to Weigh on Banking Stocks

NEW YORK (AP) -- Worries of credit deterioration spreading from subprime mortgages into other sectors helped drag down bank stocks Tuesday.

After the market closed Monday, American Express Co. beat earnings estimates, but also said credit performance was declining. American Express customers typically have strong credit, another indication subprime problems could be spreading to the broader market.

Subprime mortgages are loans given to customers with poor credit history.

"As more companies are reporting, maybe it's becoming clear there is a broad-based credit problem," said Frank Braden, an analyst in Standard & Poor's equity research division.

National banks are making up for struggling general banking operations with growing profits in other divisions such as investment banking, Braden said. Despite the improved earnings, investors are focusing on and fretting over the credit issues.

JPMorgan Chase & Co., which beat analyst expectations on the heels of record investment banking fees, but ramped up provisions for credit losses, fell $1.05, or 2.2 percent, to $46.10 in afternoon trading. Shares have ranged between $43.35 and $53.25 in the past 12 months.

Citigroup Inc. is in the same boat with JPMorgan Chase. Citigroup's earnings rose on strong international business, but were somewhat dragged down by credit problems.

Shares of Citigroup fell 92 cents to $49.94 in afternoon trading.

Washington Mutual Inc. fell $1.41, or 3.4 percent, to $39.78 in afternoon trading. It too recently announced it was increasing its reserves for credit losses. Shares of Washington Mutual have traded between $38.73 and $46.38 in the past 12 months.

Investors are not even discriminating between banks that have larger exposure to subprime, pulling down companies that with solid credit figures like Wachovia Corp. and US Bancorp, said Gary Townsend, an analyst at Friedman, Billings, Ramsey & Co.

Shares of Wachovia fell 2 cents in afternoon trading to $48.80, and have fallen 6.2 percent since the company reported earnings late last week.

Shares of US Bancorp fell 33 cents to $31.42.

As the third quarter continues, though, banks with stronger credit profiles are likely to be sorted out from those struggling, said Melissa Roberts, vice president of quantitative research at Keefe, Bruyette & Woods Inc.

"Right now, the group is trading as a whole on headline issues," Roberts said. "Investors will start to sort out who is susceptible to credit issues."