Transcripts

Now May Be The Time To Finance The Financial Sector

PAUL KANGAS: Financial stocks were already under pressure today before the Cuomo announcement, as investors fretted over whether credit write-downs would ramp up in the third quarter. Concerns about increased Fannie Mae and Freddie Mac also, with many experts predicting a government bailout coming soon. As Suzanne Pratt reports, even though the financial sector still faces hurdles, some analysts say it may be time to buy in.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fallout from Freddie Mac and Fannie Mae is creating a massive dark cloud over the financial sector. Investors are wondering whether the U.S. Treasury will intervene and if so, when. Many Wall Street experts say a government takeover is inevitable. And while Fannie and Freddie common shareholders will most likely be wiped out. Edward Jones Analyst, Tom Kersting says overall financial stocks will benefit.

TOM KERSTING, BANKING ANALYST, EDWARD JONES: I think it certainly does remove a pretty big question mark that is hovering over the financial services sector today. So I would see that as a modest positve for the sector.

PRATT: But investors are also stressed about third quarter write-downs and losses at financial firms. Analysts continue to take down their numbers for investment banks like Lehman Brothers and Goldman Sachs, as well as for large diversified and regional banks. According to Thomson Reuters, analysts now estimate a 45 percent drop in third quarter results for financials. At the beginning of July, they were predicting only a 4 percent decline. And there are concerns that other areas of the banking business will also suffer as the credit crisis spreads. As for a light at the end of the tunnel for financials, Standard & Poor's analyst Stuart Plesser recommends looking to the housing market, in particular, home prices.

STUART PLESSER, BANKING ANALYST, STANDARD & POOR'S: We can see that the rate of decline of home prices comes down that the write-downs and provisions from the banks should start to come down and that the financial sector should be something that people can feel more comfortable stepping into from a investment standpoint.

PRATT: But other analysts say why wait for a rebound in the housing market to buy financials? By then, they worry many of the companies will have already started to rally.

KERSTING: These stocks are not going to wait for all of this bad news to leave. If you look back at the 1990, 1991 savings and loan crisis, the stocks actually bottomed and moved higher nine months before the problem loans really peaked.

PRATT: Kersting predicts problem loans will peak sometime in the first half of next year and he expects homes prices will bottom at about the same time. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York