S&P MAINTAINS BUY OPINION ON SHARES OF CITIGROUP (C; 20.15):
According to the FDIC, Citigroup agrees to buy Wachovia's (WB; 10.00) banking operation. As part of the deal, Citigroup would absorb $42 billion of losses on WB's $312 billion of loans but the FDIC would absorb losses beyond that. In return, Citigroup has given the FDIC $12 billion in preferred stock and warrants as compensation. We think the deal is a good deal for Citigroup, as it would enhance Citigroup's U.S. retail customers, giving it $400 billion in deposits, and new customers to sell its current platform of products. We also believe the deal confirms that Citigroup's capital base is still relatively strong. -S. Plesser
S&P MAINTAINS HOLD OPINION ON SHARES OF WACHOVIA (WB; 10.00):
According to an FDIC press release, WB will sell $312 billion of loans to Citigroup. Citigroup will absorb $42 billion of losses, but the FDIC will absorb losses beyond that in return for $12 billion in Citigroup preferred stock and warrants. Citigroup will also assume WB's roughly $400 billion in deposits. We believe the sale was at the behest of the FDIC, concerned about WB's risky loan book including $120 billion of Option Arms. WB will retain its wealth management unit. While as we think WB's franchise value has been signficantly impaired, we are placing our target price under review. -S. Plesser
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF GOLDMAN SACHS (GS; 137.99):
According to an unconfirmed report in the Financial Times, GS is interested in buying up to $50 billion in assets from troubled U.S. banks, with the help of U.S. regulators, as part of its transition to a commercial bank. We think the current banking crisis could provide opportunity for GS and rival Morgan Stanley (MS; 24.80) to expand their deposit bases substantially on relatively favorable terms. According to the report, GS also plans to transfer $150 billion in assets to its Utah bank in another step designed to speed its transition to a bank holding company. -M. Albrecht
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF NATIONAL CITY CORP. (NCC; 2.40):
Shares are 60% lower today, which we attribute to delays in the bailout package, which we think should help stem credit losses in NCC's portfolio of residential construction and mortgage loans. Without any announcement from the company, we cannot state what the current levels of nonperforming loans are. At June 30, 7.13% of commercial construction loans and 4.93% of residential real estate loans were nonperforming. We are reducing our 12-month target price by $2 to $2, based on a sharp discount-to-peers 0.11 times June 30 tangible equity per share of $17.55. -E. Oja
S&P REITERATES SELL OPINION ON SHARES OF GENERAL MOTORS (GM; 9.78):
Congress's approval of $25 billion of low-interest loans offers the auto industry a lifeline to escape current travails and transition to more fuel-efficient vehicles. However, it is up to the car markers to make the most of this opportunity. Election year politics are the enablers of loans, in our view, but the automakers must be the executioners and deliver distinctive and desirable products for consumers. While the domestic automakers' recent track record has been poor and necessity has often bred successful innovation, this time we see greater challenges from foreign competition. -E. Levy-CFA