Financial Winners & Losers

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Financial Winners & Losers: Citi

Debra Borchardt

Investors took a glass-half-full approach after several financial companies reported poor-but-not-too-awful quarters, boosting stocks in the sector Friday.

Banking giant Citigroup (C) led the way higher on better-than-expected financial results. The nation's largest bank delivered a loss of 54 cents a share for the second quarter vs. the $1.24 it earned for the same period last year. Analysts, according to Thomson Reuters data, called for a loss of 66 cents a share.

The $2.5 billion shortfall was less than what the market expected, and relieved investors propelled the stock up 9% to $19.58. The bank laid off 6,000 employees in the second quarter and wrote down assets of $7.2 billion. Consumers affected by the weakening economy have begun to default on home-equity loans, auto loans and credit cards. Washington Mutual (WM) basked in the glow of Citi as its shares jumped 16% to $5.80

The nation's largest brokerage, Merrill Lynch (MER), had a similar story. The stock was mixed in trading, but lately was only declining 36 cents to trade at $30.37. Not a bad tumble considering the brokerage reported a second-quarter loss of $4.7 billion, or $4.97 a share. The results were much worse than analysts had been expecting.

Merrill wrote down $3.5 billion in toxic CDOs and then set aside another $2.9 billion to cover the downgrade in the credit ratings of the bond insurers. To top it off, the brokerage recorded losses of $1.7 billion in the investment portfolio of U.S. banks and $1.3 billion from mortgage exposure.

Still rallying and trying to recover from its massive selloff were big lenders Fannie Mae (FNM)and Freddie Mac (FRE). Fannie Mae shot up 21% to $13.19, while Freddie Mac catapulted 10% to $9.19.

The surge in shares was attributed to the successful issue of two-year notes by Freddie Mac. Banks lapped up the bonds, showing strong support for the governement-sponsored entities. Additionally, The Wall Street Journal reported that Freddie was considering raising as much as $10 billion in new shares. That would boost the balance sheet, but at the expense of dilution to existing shareholders.

Regional bank KeyCorp (KEY) climbed as much as 9% in early trading but then slid back to a gain of 5.8% to sell at $11.39. Rumors were being floated that Key could be a good fit if Wells Fargo (WFC) did indeed look to buy more regional banks.

The NYSE Financial Sector index advanced1.3% to 6,352.39.

One regional bank not faring as well Friday was Zions Bancorp (ZION), which posted a 55% plunge in second-quarter profit. The stock sunk 8% to $25.32. Analysts had estimated income of 74 cents a share, but Zions posted only 65 cents a share. The Salt Lake City-based bank had to set aside $114.2 million during the quarter for bad loans.

Capital One Finance (COF) also saw its second-quarter earnings fall 40% as a result of problem loans. Net income fell to $452.9 million from the $750.5 million it enjoyed a year ago. Capital One is seeing the same credit-card default problems that Citigroup has experienced and is forced to set aside more cash to cover the defaults. The stock dropped 11 cents to $42.69.

And finally insurance provider Brown & Brown (BRO) tumbled 8% to $17.19 after it reported lighter profits as its net income dropped from last year's pace. The company, however, has been busy with acquisitions, making 13 deals in three months.