Financial Winners and Losers: Citigroup

(Updated with final stock price moves throughout, CIT Group report.)

Financial stocks ended Monday's session mixed, with Citigroup ( C) among the decliners after an analyst reduced full-year earnings estimates through 2011.

Rochdale Securities analyst Richard Bove cut his 2009 earnings estimate for Citigroup to 22 cents a share from 34 cents following the bank's second-quarter earnings report Friday. Bove also cut his 2010 estimate to 10 cents a share from 14 cents, and he reduced his 2011 earnings forecast for the bank to 30 cents a share from 34 cents. Bove maintained his buy rating on Citi shares and a price target of $4.

On Friday, Citi reported a second-quarter profit of $4.27 billion, or 49 cents a share, swinging from a year-ago loss of $2.5 billion, or 55 cents a share. However, the results benefitted from $11.1 billion pre-tax, or $6.7 billion after-tax, gain associated with the joint venture to combine its Smith Barney wealth management unit with Morgan Stanley's ( MS) brokerage operations.

In his research note, Bove called Citigroup "a deeply troubled company," noting that the bank would have lost 18 cents a share in the second quarter if not for the gain from the Smith Barney transaction. "This would have been consistent with the first quarter's loss, which was also 18 cents per share," Bove wrote.

"The company's provision for loan losses in the quarter was 7.63% of loans," Bove wrote of Citi. "Its reserves are 5.60% of loans and only 69.7% of non‐performing assets (includes 90 day past due loans). These numbers are generally associated with banks that are unable to survive."

Bove did add that Citigroup is actually an attractive speculation for high-risk accounts. "The new company will have the funds to build new successful businesses," he wrote. "It has also built a management team that should be able to create a sustainable earnings stream."

Citi shares closed down 23 cents, or 7.6%, to $2.79.

Bank of America ( BAC) was also among the laggards after FBR Capital Markets analyst Paul Miller cut his 2009 earnings estimate for the bank. Miller reiterated his market perform rating on the bank's shares, saying that he remains "acutely concerned about credit loss trends."

BofA also reported quarterly results Friday alongside Citi. The bank said it had second-quarter earnings of $3.2 billion, or 33 cents a share, after deducting preferred dividends, down from the year-ago quarter but ahead of the Thomson Reuters average estimate of 28 cents a share. Revenue of $32.77 billion was slightly below Wall Street's forecast of $33.1 billion.

Miller cut his full-year 2009 earnings estimate for BofA to 45 cents a share from 75 cents, and he maintained his 2010 estimate for a loss of 30 cents a share. "The one issue investors should be concerned about is that this could be the last quarter BofA makes money over the next year," Miller wrote in his research note.

Meanwhile, an analyst at Keefe, Bruyette and Woods also cut earnings estimates. Jefferson Harralson dropped his 2009 earnings-per-share forecast to a loss of $1.05 from 25 cents. Harralson also cut his 2010 estimate to 80 cents a share from $1.05. Despite the decreased earnings estimates, Harralson left his price target for BofA share at $16.50.

BofA shares slumped 65 cents, or 5%, to close at $12.24.

Other bank stocks closed higher. On the winning side, Wells Fargo ( WFC) gained 2.4%, Goldman Sachs ( GS) rose 2%, Morgan Stanley finished up 1.3%, Bank of New York Mellon ( BK) added 0.4%, and JPMorgan Chase ( JPM) tacked on 0.2%.

M&T Bank ( MTB) shares rose $2.67, or 4.9%, to finish the day at $57.11 after it recorded second-quarter net income of $51.2 million, or 36 cents a share, down from $160.3 million, or $1.45 a share, in the year-ago quarter.

The bank said that excluding the impact of merger-related expenses and intangible amortization, it would have earned 79 cents a share, despite the Federal Deposit Insurance Corp.'s special assessment which reduced that measure by 17 cents a share. Analysts were looking for earnings of 48 cents a share, according to Thomson Reuters.

Elsewhere, The board of struggling lender CIT Group ( CIT) approved a deal Sunday evening with some of its major bondholders to help it avert a bankruptcy filing through a $3 billion emergency loan, The New York Times reports, citing people briefed on the matter.

Under the terms of the deal, CIT would receive $3 billion from some of its main bondholders, though at an initial rate of about 10.5%, the report said.

Late in Monday's session, reports surfaced that CIT's rescue financing would be split into two parts. CNBC reported that $2 billion was committed Monday, with another $1 billion to come in the next 10 days.

CIT shares surged 55 cents, or 78.6%, higher to close at $1.25.