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Financials look to end January flat after Thursday rally

Jan 31, 2008 Market Outlook

Financials look to end January flat after Thursday rally

By Greg Morcroft, MarketWatch

Last Update: 3:42 PM ET Jan 31, 2008

NEW YORK (MarketWatch) — Financial stocks rounded out a wild January on
Thursday, closing higher for the day but after fighting off early session losses,
but the the broad measure of large financial shares clsoed flat for the month.

The Financial Select Sector SPDR Fund (XLF) , an ETF that tracks the financial
stocks in the S&P 500, rose 3.5% after calming comments from troubled bond
insurer MBIA Inc. offered investors some relief.

But over the course of January, the benchmark guage closed just about flat, as
outsize gains in some shares, like Washington Mutual (WM), E-Trade (ETFC) ,
offsett big losses in firms like Ambac (ABK), InterContinntal Exhange (ICE) and
Countrywide (CFC).

For the week to date, the XLF is up about 7%.

The early selloff was triggered by a more than $2 billion fourth-quarter loss at
bond-insurer MBIA Inc and a higher-than expected number of first-time jobless
claims that rattled investors.

But, MBIA (MBI) traded up more than 9% after the bond insurer tried to assure
investors and analysts that it has enough liquidity to ride out the meltdown in
the mortgage market.

The company said in a presentation that it had more than $1.5 billion of
liquidity at the end of 2007. That includes cash and investments, revolving
credit and dividends from its insurance units and investments.

MBIA projected that it will have to use about $229 million of that liquidity,
leaving it with more than $1.3 billion, according to the presentation. Rival
Ambac’s shares rose about 1% after dipping 5% in earlier trade.

MBIA earlier reported a fourth-quarter loss of $2.3 billion, or $18.61 per share,
on significantly wider spreads and ratings downgrades of securities backing
collateralized debt obligations. It earned $181 million in the year-ago quarter.

MBIA also said it secured a commitment from Warburg Pincus to backstop a $500
million rights offering, and it is considering this and other steps to raise
equity.

First-time jobless claims rocketed higher last week.

Initial claims for state unemployment benefits rose 69,000 in the week ended Jan.
26, reaching 375,000, the Labor Department reported Thursday. It marked the
highest level since early October — and the biggest weekly jump since September
2005 in the wake of Hurricane Katrina.

The Amex Securities Broker/Dealer Index (XBD) and the KBW Bank Sector Index (BKX)
rose 3.3% and 3.6% respectively.

A note from rating agency Standard & Poor’s was also weighing on the banking
sector. In the note, S&P suggested that financial institutions total writeoffs
might hit $265 billion, far more than the more that $100 million they have
already written off.

“In our opinion, the downgrades of mortgage securities could lead to the
realization of those losses, especially among some of the smaller players that
have yet to feel the full extent of the value impairments on securities held in
their available-for-sale securities portfolios,” S&P said.

Among the financial stocks in the Dow Jones Industrial Average, banks Citigroup
(C) and J.P. Morgan (JPM) rose 3.6% and 0.6% and 0.6% respectively. Insurer
American International Group (AIG) aded 1.3% and consumer and specialty finance
firm American Express (AXP) rose 5.6%.

Among European firms listed in the U.S., shares of Swiss banking giant UBS fell
6.6%

Morgan Stanley cut UBS to underweight from equal weight on Thursday, citing
ongoing concerns about the earnings and balance sheet impact of massive
de-leveraging and de-risking of the bank’s mortgage-heavy balance sheet.

“We still see material headline risk from subprime and other asset concerns,
monolines and low investment bank visibility,” the broker said. UBS shares fell
8% in Switzerland.

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