-
August was a difficult month for bank stocks. The KBW bank index fell at one time during the month by over 20% before recovering to a month-end 13.4% decline. This pattern has been consistent for bank stocks, which have retreated from their April highs due to the return of macroeconomic concerns. The KBW index is down 23.1% while the broader S&P 500 is only off 3.7%, year-to-date.
September 8
Some top bankers sought this week to convince investors that the industry is getting an unfair shake from Wall Street.
The thrust of the argument delivered by the heads of U.S. Bancorp, PNC Financial Services Group Inc. and other large institutions at a conference in New York: Banks are in actually pretty good shape, despite their mortgage woes and broader economic problems. Losses are on the wane and liquidity is at an all-time high.
Though some market watchers conceded some of the points, they said it will take more than upbeat sales pitches to reverse a seven-month slide in bank stocks. The KBW Bank Index of 24 large banks was down 27% for the year as of Thursday afternoon.
What banks need, they said, is for dividends to come back and legal woes involving bad home loans to go away.
When banks stopped paying dividends during the downturn, they lost the kinds of stable, long-term investors that would act as a floor on their share prices. Now they attract the kinds of investors that angle for a faster return.
"Banks have been pushed into what we were saying is the risk-trade," said Marty Mosby, an analyst with Guggenheim Securities LLC, adding that bank stocks tend to outperform the broader markets on a good day and do worse on a bad day. "When investors are interested in taking risk, they buy banks as much if not more than they buy anything else."
Bank stocks are increasingly looking like a bargain, but the industry is vulnerable to factors outside its control, said Gary B. Townsend, chief executive of Hill-Townsend Capital LLC. Heavy-handed policymakers have hampered the industry with more legal and regulatory costs, he said.
"One can't ignore the valuations at these levels — they are superb. But you are still taking risks in investing even at these levels," Townsend said.
Bankers repeatedly made the case that investing in the sector is a risk worth taking during the three-day conference hosted by Barclays Capital LLC.
Richard Davis, chairman and chief executive of U.S. Bancorp in Minneapolis, said on Wednesday at a Barclays Capital conference that performance and market capitalization are misaligned. Trading activity is being guided by "uncertainty" over "anything from the debt ceiling to the European contagion risk," he said.
Though consumers are struggling, corporate and wholesalers are doing quite well, having stockpiled cash and improved the efficiency of their businesses, Davis said. That, in turn, is helping drive U.S. Bancorp's loans, deposits and revenue higher.
Kevin Kabat, CEO of Fifth Third Bancorp in Cincinnati was similarly optimistic, saying on Tuesday that "business activity remains pretty good this quarter, despite the headlines."
"There seems to be a little bit of a disconnect from the headlines relative to what we're seeing in our markets," Kabat said. "Manufacturing continues to be chugging along. In our core markets, we continue to see good deposit growth."
There is also a refinance "boom going on in the mortgage space," he said.
He said that some of the biggest "negatives surrounding the industry" involve unpredictable matters that banks are being sued for, such as settlements over sales of faulty mortgages. There are "good reasons" to be down on banks, but the "environment is one in which we can produce and are producing solid results."
James Rohr, chairman and CEO of PNC Financial Services Group Inc. in Pittsburgh, on Monday said that while many investors are "avoiding bank stocks altogether… frankly, at today's prices there's a real opportunity" to buy them.
He also said things are looking up for the industry, despite low interest rates, international debt concerns and stubbornly high unemployment.
"We have issues, like the federal lawmakers can't seem to agree on the best course of action to resolve our fiscal issues," he said. "This said, this is not 2008, as U.S. banks have more than doubled their capital ratios since then. … There's cash everywhere, and profitability has returned across the industry."
BB&T Corp. CEO Kelly King gave a stellar forecast for most of the Winston Salem, N.C.'s important businesses on Tuesday. He said its loan growth "picture is pretty pleasing" despite the "lackluster economy;" corporate banking is "really growing rapidly;" and its deposit franchise "frankly, is just booming. The money is just flooding" into the bank.
He said another round of heavy loan losses is unlikely, unless unemployment soars.
"And we don't see that as being very likely," King said. "We think it's likely that employment would be really sticky and come down very, very slowly."
