NEW YORK — Bank stocks surged Friday after the Congress reached a deal on financial-sector legislation, easing months of uncertainty that had pressured the sector.
The agreement involving both houses of Congress, White House officials and regulators, among others, offers the clearest picture in the wake the financial crisis of how markets and the government will interact and puts large financial companies on a tighter leash.
But investors seemed more confident in bank stocks Friday as the deal appeared to be less onerous than previously feared.
Sandler O'Neill analyst Jeff Harte said the final agreement reached by Congress wasn't too surprising as many of the new elements had been subjects of rumors in recent days. Still, he acknowledged financial stocks are responding to the improved clarity.
The financial sector was the best performer in the Standard & Poor's 500 on the day up 2.8%, as the broader market was mixed.
Among the stocks getting a boost, Goldman Sachs Group Inc. shares rose 3.5% to $139.66, while Morgan Stanley (MS) climbed 3.1% to $25.01. JPMorgan Chase & Co. was up 3.4% at $39.44, Citigroup Inc. increased 4.2% to $3.94, Bank of America Corp. climbed 2.% to $15.42, and Wells Fargo & Co. edged up 0.7% to $27.05.
Most of the stocks saw their gains slightly accelerate as the session progressed; trading volumes were slightly above their 30-day averages.
Many of the big banks have seen their stocks under heavy pressure this year amid worries about what form the financial regulations would take, along with concerns about exposure to the European debt crisis, among other things. Shares of Goldman Sachs, which was charged with civil securities fraud by the Securities and Exchange Commission in April, are off 17% so far this year. Morgan Stanley, also the subject of government probes, has fallen 16%. JPMorgan is off 5.4% for the year to date, while Bank of America is up 2.4%.
Sandler O'Neill's Harte cautioned uncertainty will continue to surround the sector until economic conditions improve, the bill is actually signed by the president and there is more clarity on how regulators will handle and define certain details of the bill left for their interpretation.
But Rochdale Securities analyst Dick Bove said bank stocks are likely to rally over the next couple of weeks as investors turn more positive on the sector.
"The industry has been subjected to 18 months of vilification by the press, Congress and everyone else, but that will now stop," Bove said. "Not only will it stop, but now the government has to go out and support the industry because they said they fixed it."
Despite the regulations, other analysts doubted how much they would help prevent another crisis in the banking system.
"None of the legislation really addresses all of the things that led to where we are," Wall Street Strategies analyst Charles Payne said. "I'm not sure it even addresses 'too big to fail.'"
And Collins Stewart analyst Todd Hagerman largely viewed the bill as a negative, saying it "will further hinder the U.S. economy's already fragile recovery" and curtail bank profits as they seek to comply with the new regulations.
Among other stocks posting gains tied to the new rules were regional banks, exchanges and ratings firm Moody's Corp.
Analysts have said regulations on interchange fees for debit cards could hurt some mid-sized banks because those fees are a nice source of revenue. Oppenheimer analyst Terry McEvoy said it is still unclear what specifically will happen to the interchange revenue. Gainers included Regions Financial Corp., up 2.6% at $6.99, and U.S. Bancorp, up 3.3% at $23.36. SunTrust Banks Inc. increased 4.7% to $25.87, and Marshall & Ilsley Corp. rose 6.3% to $7.92.
Exchanges climbed as the financial regulations will solidify the shift of some over-the-counter trading to exchange-backed clearinghouses and electronic trading platforms. IntercontinentalExchange Inc. was up 3.4% at $118.36, and CME Group Inc. rose 2.4% to $297.28.
As for the ratings firms, Piper Jaffray analyst Peter Appert said it's become increasingly clear the new regulations won't be a game changer. Moody's shares rose 6.8% to $22.01, but Standard & Poor's owner McGraw-Hill Cos., which has more diversified operations, didn't see the same boost, sliding 1.7% to $29.74. Moody's may have also benefitted from short-covering, as it has about 14% short interest versus McGraw-Hill's 3%, according to FactSet.