Thrift Stocks’ Cooling-Off Continues

Shares of major thrifts slumped again Monday, continuing a sell-off that has hammered the stocks’ prices over the last week.

Some Wall Street analysts have been talking the stocks down, saying the companies’ future earnings growth is in question if the Federal Reserve is near the end of its campaign to cut interest rates.

On Monday, Washington Mutual (ticker symbol: WM) tumbled $1.71, or 4.5%, to $36.25, bringing the stock’s loss since Aug. 17 to nearly 14%. In that same period the blue-chip Standard & Poor’s 500 index gained 1.5%.

Also Monday, Golden State Bancorp (GSB) fell $1 to $29. The price has dropped 16% since Aug. 17. Other thrift losers Monday included Golden West Financial (GDW), off 25 cents to $54.50; Greenpoint Financial (GPT), down $2.27 to $38; Downey Financial (DSL), off 61 cents to $46.90; and Astoria Financial (ASFC), down $1.22 to $55.85.

Thrift stocks had been hot performers in recent months as their primary business--making home loans--has continued to boom.

Thrifts have benefited from the Fed’s seven reductions in short-term interest rates this year. The Fed’s cuts have slashed the rates thrifts pay for deposits. But long-term rates, such as on mortgages, are set by market forces rather than by the Fed. Mortgage rates today are only slightly below their levels at the start of the year.

That has made for a wider spread between what thrifts pay for money and what they earn on loans. But “as we near the end of the rate-cut cycle, we believe that [profit] margins right now are unsustainably high,” said Mark Agah, an analyst at Minneapolis-based brokerage Dain Rauscher Wessels. On Thursday he downgraded Golden West and Downey to “neutral” from “buy.”

A report Monday showing weakness in sales of existing homes in July also hurt thrift stocks.

The shares were “ripe for a little profit taking,” said Charles Crane, a money manager for Victory SBSF Capital Management in New York.