U.S. Stocks Decline as Analysts Predict Bigger Losses for Banks

March 29 (Bloomberg) -- U.S. stocks extended their worst quarterly decline since 2002, falling for the fourth time in five weeks, on the prospect of dividend cuts and deeper earnings declines for financial companies.

Banks and brokerages had the biggest weekly slump in two months after analysts at Goldman Sachs Group Inc., Sanford C. Bernstein & Co. and Lehman Brothers Holdings Inc. said financial company earnings will be less than previously estimated. Bigger losses will force Citigroup Inc. and Bank of America Corp., the biggest U.S. banks by assets, to cut their dividends, Oppenheimer & Co.'s Meredith Whitney said.

``People are wondering what else could happen'' to financial companies, said Vivienne Hsu, a San Francisco-based money manager with Schwab Investment Management, which oversees almost $40 billion. ``It's like one big earthquake and then several little aftershocks, and I expect these aftershocks to continue.''

The Standard & Poor's 500 Index lost 1.1 percent to 1,315.22 this week. The Dow Jones Industrial Average fell 1.2 percent to 12,216.40. The Russell 2000 Index of small-cap stocks rose for a third straight week, the longest streak since May, adding 0.3 percent to 683.18.

Financial firms in the S&P 500 lost 7 percent as a group and made up seven of the ten biggest declines in the S&P 500 this week. At least a dozen analysts have reduced profit estimates in the past six weeks for the biggest banks and securities firms. The industry worldwide has already reported $208 billion in losses related to the collapse of the U.S. subprime mortgage market, according to Bloomberg data.

Dividend Reductions?

Citigroup, Bank of America, Wachovia Corp. and Wells Fargo & Co. won't be able to support their current dividends as earnings falter, Whitney said. The analyst, who correctly predicted Citigroup would cut its payout two months before its first-ever reduction, said the New York-based bank will report a quarterly loss four times larger than her previous estimate. Citigroup shares, which have declined 29 percent this year, tumbled 7.4 percent to $20.83 this week.

``What we find is that there seems to be layer after layer of various, strange financial instruments,'' Alfred Kugel, who manages $17 billion as chief investment strategist at Atlantic Trust in Chicago, said during a Bloomberg Television interview. ``Our guess is that we're going to have a big rally in the financials at some time, but it is down the road.''

Writedown Estimate

Bank of America fell for the third time in four weeks, losing 9.1 percent to $38.07. Goldman Sachs analysts reduced their earnings-per-share estimate for this year to $3.35 from $4.05, citing an estimated $3 billion first-quarter writedown.

Merrill Lynch & Co. slumped 15 percent to $39.93. Bernstein analyst Brad Hintz said the biggest U.S. brokerage may write down $4.5 billion on collateralized debt obligations and post a first- quarter loss. He cut Merrill's first-quarter estimate to a loss of $1.60 a share, down from an earlier estimate for profit of $1.30 a share.

Lehman analyst Jason M. Goldberg lowered his earnings estimates for large and mid-sized U.S. banks this year by 7 percent and said he expects higher-than-forecast loan-related losses.

Clear Channel Communications Inc. had the steepest weekly decline since July 2002, dropping 16 percent to $29.20. The biggest U.S. radio broadcaster said its sale to private-equity firms may collapse after banks financing the purchase failed to show up at a meeting scheduled to close the deal.

Profit Miss

Apollo Group Inc. lost 30 percent to $41.21. The operator of the for-profit University of Phoenix reported quarterly profit that was 21 percent less than analysts estimated, according to Bloomberg data.

The yield on 10-year Treasury notes climbed to 3.45 percent from 3.33 percent as traders pared bets on additional interest- rate cuts by the Federal Reserve. Two-year yields increased to 1.65 percent from 1.60 percent.

The U.S. lost jobs for a third month in March and manufacturing contracted at the fastest pace in five years, signs the economy continues to turn down, economists said before reports next week.

Payrolls probably shrank by 50,000, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department's April 4 report. The last time the economy lost jobs for at least three consecutive months coincided with the start of the Iraq War in 2003.

The Institute for Supply Management may report April 1 that its factory index fell to 47.5 this month, the lowest level since April 2003, from 48.3 in February, according to the survey median. A reading of 50 is the dividing line between expansion and contraction.