NEW YORK ( TheStreet) -- "Most regional bank stocks don't offer much upside given their current valuations," according to Citigroup analyst Keith Horowitz.
Continuing what now seems to be an annual pattern for the banking space, with a strong first quarter, followed by a weakening outlook for the rest of the year, Citigroup on Friday cut its 2013 earnings estimates for 13 out of 16 large regional banks in the firm's coverage universe, while lowering price targets for 10 of the companies.
In light of the "flattening of the yield curve that has taken place since 1Q12 earnings season," -- with short-term rates unable to go much lower, while the yield on 10-year U.S. treasuries slipped below 1.5% last week -- Citigroup said that "the primary driver of the lower estimates is, not surprisingly,
A bank's net interest margin is its average yield on loans and investments, less its average cost for deposits and wholesale borrowings.Horowitz said that bank treasurers attending Citigroup's annual conference for treasurers two months ago "expected the 10-year treasury to be in the 2.00% to 2.10% range by year-end - almost 50 bps higher than the current yield," and that the "mismatch between expectations and reality suggests that bank treasurers have their work cut out for them." Citigroup sees a "slow burn" for the regional banks, as "lower expectations for long rates only fully manifests itself over time as it lowers expected reinvestment rates, steadily reducing expected yields on fixed rate assets as loans and securities
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