NEW YORK (TheStreet) -- Large-cap U.S. bank stocks were hit hard on Monday, as global markets continued to slide over fears of slowing growth.
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U.S. markets followed international markets lower after China's official purchasing managers index for January came in at 50.5, declining from 51.0 in December.
A continuing flight by investors to safety was illustrated by the 6 basis-point decline in the market yield on 10-year U.S. Treasury bond to 2.59%. The yield on the 10-year bond ended 2013 at 3.04%, soon after the Federal Open Market Committee announced that the Federal Reserve would begin tapering its purchases of long-term bonds. The FOMC announced a second tapering of the bond purchase last week to a monthly pace of $65 billion. All things being equal, the curtailment of the central bank's massive expansion would be expected to lead to a rise in long-term interest rates. The FOMC's next policy meeting is scheduled for March 18-19.
The KBW Bank Index (I:BKX) was down 2.7% to 65.50, with all 24 component stocks ending with losses of over 1% and 17 seeing declines of over 2%. The worst-performer among large U.S. banks was Cullen/Frost Bankers (CFR) of San Antoinio, with shares down 5.3% to close at $70.30.
First Niagara Financial Group (FNFG) of Buffalo, N.Y., had another rough day, with shares down 5.1% to close at $8.22. The shares have declined 23% this year, with investors losing patience last week after the company announced a massive four-year spending program meant to improve the banks operating performance. That announcement followed the acquisition breather the bank took during 2013, which followed four years of deals that more than quadrupled First Niagara's size.
The KBW Bank index has now given up 5.4% during 2014, following a 35% gain in 2013, preceded by a 30% gain during 2012. More than one analyst sees this year's pullback as a buying opportunity for large-cap U.S. bank stocks. This is especially for Citigroup (C), which is already one of the cheapest U.S. bank stocks, trading for just 8.0 times the consensus 2015 earnings estimate of $5.78 a share, among analysts polled by Thomson Reuters. Citi's shares were down 2.3% on Monday to close at $46.34.
Evercore Partners analyst Andrew Marquardt on Monday reiterated his "overweight" rating on $58 price target for Citigroup, writing in a note to clients that the worst-case scenario springing from the company's exposure to emerging markets was "already baked in" to the bank's share price. Citigroup derived 56% of its core 2013 operating revenue from outside the United States, which is by far the highest level for any large-cap U.S. bank.
According to Evercore's estimates, "we estimate worst case EM risk could translate to an ultimate potential [tangible book value] hit of $6/shr and/or forward est revisions downward of 13-15%," Marquardt wrote. Citi reported Dec. 31 tangible book value of $55.38. Marquardt added, "when we balance contagion downside against potential upside longer-term, factoring in a more "norm" earnings power, etc. we see upside/downside ratio close to 2-1 which we think is compelling for investors."
This chart shows the performance of Citigroup's stock against the KBW Bank Index and the S&P 500 since the end of 2011:
data by YCharts