Citi Marks Down Banks

Updated from 11:57 a.m. EST

Financial stocks were mixed Monday after Citigroup(C Quote) slashed ratings for nine banks on greater concern about the sector's outlook amid a deepening credit crisis and deterioration in the mortgage industry.

Citi analyst Keith Horowitz cut ratings on the majority of the banks he covers because he predicts the group is "likely to be flat/down over the next several months as EPS estimates are reset downward to reflect an increasingly difficult environment," he wrote in a note published late Friday.

Horowitz cut Bank of America(BAC Quote), JPMorgan Chase(JPM Quote), Wachovia(WB Quote), Wells Fargo(WFC Quote), First Horizon(FHN Quote) and PNC(PNC Quote) to a hold rating. He also downgraded Comerica(CMA Quote), M&T Bank(MTB Quote) and U.S. Bancorp(USB Quote) to sell ratings.

He maintained a hold rating on the remaining banks he covers, which include Fifth Third(FITB Quote), KeyCorp(KEY Quote), National City(NCC Quote), and SunTrust(STI Quote).

The ratings changes reflect lower earnings estimates for most banks, higher credit losses, lower net interest margins -- the profit that a bank makes from taking in deposits and lending them back out -- and a weak capital markets outlook, Horowitz wrote.

"The key question is whether now is the time to try to buy on weakness after significant underperformance, but our review of the credit trends shows that we are very early in the credit cycle," he noted.

That said, Horowitz wrote that most of the stocks already reflect the increasingly troublesome credit trends, "but we find it very hard to make a compelling case that the banks are cheap, given prior trough valuations and without clarity that we are anywhere near the peak" in nonperforming assets.