CANADA STOCKS-TSX drops as U.S. Citigroup move hits banks

Fri Feb 27, 2009 5:00pm EST
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* TSX down 0.78 pct at 8,123.02

* Index up 2 percent on the week

* Financials lead TSX fall; Citigroup weighs (Adds details, quote)

TORONTO, Feb 27 (Reuters) -Toronto's main stock index retreated on Friday after three days of gains as the U.S. government's announcement that it will take an equity stake in Citigroup put pressure on the heavily weighted financial sector.

Financial shares dropped 3.3 percent on fears of the consequences of governments taking big stakes in banks after the U.S. Treasury said it will convert some of the preferred stock it holds in lender Citigroup into common stock. [ID:nN27330392]

Such a move results in a "huge dilution to the current shareholders," said Jennifer Radman, vice president at Caldwell Investment Management Ltd.

"That's really the concern there," she said. "You'd like to be able to get into a stock and know that the earnings going forward are going to be entirely yours, but the banks seem to need more and more capital, so nobody's really certain how much more financings are to come."

Among the biggest contributors to the index's fall were insurer Manulife Financial (MFC.TO: Quote), down 9 percent at C$12.90, and Royal Bank of Canada (RY.TO: Quote), which shed 3.1 percent to C$30.92. Sun Life Financial (SLF.TO: Quote) dropped 6 percent to C$19.91, and Toronto-Dominion Bank (TD.TO: Quote) fell 1.5 percent to C$37.39.

As well, Radman said investors were likely locking in profits after the financials sector rallied earlier this week as quarterly results from big Canadian banks topped expectations.   Continued...