C & BAC: Downgraded

Citigroup (C) and Bank of America (BAC) are considered to be wall street
bellweathers for financial sector. So, on wednesday, when Merrill Lynch
downgraded both these stocks together to neutral, that must be taken into
consideration with lot of seriousness.

Merrill analyst Edward Najarian pointed out that there are few, if any,
potential catalysts to drive the stocks higher. Regarding Bank of America,
in addition to concerns about the flattening yield curve, he cited earnings
quality; expectations that the bank would post 2nd half and 2006 earnings
below current analyst estimates; expected dilution to earnings from the
MBNA acquisition in 2006; and a cutback in the share buyback program.
He also said he's concerned that the bank's $5 billion in unrealized losses
in the bond and derivatives portfolios could lead to realized losses in
upcoming quarters.

As for Citigroup, Merrill analyst Guy Moszkowski said that the broker's
2006 estimates for the bank at $4.31 a share are too high. It remains
dependent on private equity gains and some yield curve steepening, which
could fail to materialize. A flatter yield curve could pressure the corporate
business. Moszkowski pointed out that Citi's been spending faster than
revenue growth to maintain and grow business volumes and there are
"signs that this can no longer be offset by falling credit costs, especially
given the flattening yield curve." He also noted that there's no sign the
bank would slow spending.

For our readers, our suggestion is to invest money in some Exchange
Traded Fund (ETF) like iShare's S&P Global Financials Sector Index
Fund (IXG) or Select Sector SPDR-Financial (XLF). The yields are good
and expense ratios are low. Advantage: Diversified portfolio in this sector.