US Fincl Stocks Down; Credit Card Cos Lag, Brokers Dip

US Fincl Stocks Down; Credit Card Cos Lag, Brokers Dip

Last Update: 2/4/2008 11:01:18 AM

By Greg Morcroft

Shares of credit-card firms led financial stocks lower Monday morning as a pair
of downgrades for Discover Financial Services and American Express, issued
Friday, rippled through the market.

In early trading Monday Capital One Financial Corp. (COF) led all decliners,
slipping 7%, trailed by Discover (DFS) shares, which fell 5.4%. American Express
Co. (AXP), a member of the Dow Jones Industrial Average, fell 3.9%.

On Friday, analysts at Sandler O’Neill downgraded the shares and said the credit
crisis and related consumer woes would weigh on the shares.

Shares of MasterCard Inc. (MA) rose, adding to big gains in its shares last week.
MasterCard’s business is based on transactions. So, even though consumers may be
stretched too thin to borrow more or make timely payments, growing use of cards
to pay regular bills and make everyday purchases with debit cards will provide
some buffer, indeed growth, for the firm, analysts say.

Shares of the Amex Securities Broker/Dealer Index dropped about 1%.

Shares of Lehman Bros. (LEH) and Goldman Sachs Group Inc. (GS) led decliners
despite a modest upgrade from Punk Ziegel analyst Dick Bove, to market perform.

Bove also upgraded Bear Stearns Cos (BSC) and Merrill Lynch & Co. (MER) to market
perform, and put a buy rating on Merrill Lynch.

He said that falling interest rates, accelerating home mortgage refinancings, and
more optimistic equity markets all bode well for the big Wall Street brokers.

“In sum, the financial sector is changing,” Bove said

“The changes will be gradual, except in mortgages, but the changes are all likely
to be positive. This makes the brokerage stocks more interesting, but in most
cases not yet buys. The strength expected in mortgages, however, gives one
encouragement that Lehman Brothers might recover faster than its peers do. It
also means that Bear Stearns is no longer in jeopardy.

Bove still rates Morgan Stanley (MS) a sell however, cautioning that, “a fear
that this company’s lack of understanding of risk, at a time when its appetite
for risk keeps growing, may prove to be chastening.”

Despite a barrage of negative headlines last month, the financials sector managed
to post a slight gain while the broad market shed 6%, leading some to recommend
the Financial Select Sector SPDR and others.

The XLF and other financial sector ETFs like iShares Dow Jones U.S. Regional
Banks (IAT) and the KBW Bank ETF (KBE) all fell by double digits in 2007,
according to Morningstar analyst Sonya Morris. She added that all are now trading
at least 25% below what Morningstar thinks they are worth.

“These funds are among the cheapest ETFs that we cover,” Morris said.

-Greg Morcroft; 415-439-6400; AskNewswires@dowjones.com

(END) Dow Jones Newswires

February 04, 2008 11:01 ET (16:01 GMT)

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