Bank stocks advanced Wednesday, bucking the broader market's downward trend, after Bank of America Corp. made a bold move to start forgiving principal on troubled home loans.
The KBW Bank Index rose 0.42%, to 52.34, paced by a 2.6% jump in B of A's shares, which closed at $17.57 after the company said it would reduce mortgage balances for some customers by up to 30% if they have missed at least two months of payments and owe 20% more than their homes' current value. Analysts said the decision could be a bellwether for the industry, potentially prompting rival banks to consider principal forgiveness.
The news helped lift stocks of home mortgage insurers, who would face smaller payouts if some problem loans stay out of default.
The Dow Jones industrial average dropped 0.48%, to 10,836.15, and the Standard & Poor's 500 index closed 0.55% lower, at 1,167.72.
Bank stocks also may have gotten a lift from a Bloomberg News report saying that Richard Bove, a bank industry analyst at Rochdale Securities LLC, expects the sector may quadruple during the next two to three years. "The catalyst is the reduction in loan losses. That's all that investors in banks care about," Bove told the wire service.
KeyCorp shares jumped 2.7%, to $7.90. Other regional banking companies that posted gains for the session included Fifth Third Bancorp, up 0.9%, to $13.58; Regions Financial Corp., 1.6%, to $7.85, and Zions Bancorp., 1.1%, to $23.06.
U.S. Bancorp fell 0.23%, to $26.19, and Associated Banc-Corp dropped 0.6%, to $14.17.
