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The banks have had a tough week as bad news slams the sector, compounded by analyst downgrades of their stocks.
The SPDR S&P Bank ETF ended the week down 2.1 percent. Frankfurt-listed shares of Deutsche Bank fell more than 9 percent on Friday, while U.S.-traded shares of Wells Fargo and Citigroup closed down about 1.5 percent and 1.4 percent, respectively.
Equity research firm AlphaValue has changed its opinion on Deutsche to "sell" after the bank confirmed that the Justice Department made an opening claim position of $14 billion to settle a number of investigations related to mortgage securities and related activity between 2005 and 2007. Although Deutsche may eventually settle at a much lower figure, AlphaValue said it reduced its earnings forecasts for Deutsche since the bank's litigation provisions are currently at 5.5 billion euros, or about $6.14 billion.
Deutsche said in a statement that it "has no intent to settle these potential civil claims anywhere near the number cited" and that "negotiations are only beginning." It expects the eventual figure to be "similar to those of peer banks which have settled at materially lower amounts."
Atlantic Equities downgraded Wells Fargo to "underweight" and cut its price target to $44 from $51 on Friday. Although the bank was recently fined $185 million by regulators for setting up 2 million accounts without customer authorization, Atlantic said the fine "is not material." The firm's concern is that Wells Fargo that the news "will be disruptive" and "poses a huge reputational risk." Atlantic said that the bank may lose "its premium rating" as the story plays out.
It was also reported that federal prosecutors are investigating Wells Fargo.
The scandal around the regulatory fine hampers Wells Fargo's ability to market multiple products to individual consumers, known as "cross-selling," which "has been a key driver of WFC's superior growth," Atlantic said. While the bank has already rescinded its sales incentives, Atlantic said that it's likely "regulators will now take a closer look at cross-selling techniques across the banking industry, which will almost certainly have a negative impact on WFC and the industry as a whole."
Wells Fargo declined to comment.
Goldman Sachs downgraded Citi to "neutral" from "buy" on Friday. The firm said that although the bank has been investing in higher return businesses like credit cards and wealth management, it will not be enough for Citi to reach its 10-percent return-on-equity target. Goldman also lowered its 12-month price target to $50 from $52.
Citi also declined to comment.
Disclosures: Goldman Sachs has received compensation from Citi for both investment banking and non-investment banking services in the past 12 months. Goldman has also had a non-investment banking securities-related services, investment banking, and non-securities services client relationship with Citi in the past 12 months. The firm also expects to receive or intends to seek compensation from Citi for investment banking services in the next 3 months. Goldman makes a market in the securities or derivatives of Citi. It also holds a position greater than $15 million (or equivalent) in the debt or debt instruments of Citi.