Bank stocks continued to seesaw Wednesday, posting strong gains in early trading after the release of promising economic indicators but retreating in the afternoon amid concerns over a lukewarm response to a government bond issue.
The KBW Bank Index still managed to finish in the black, rising 4.9%. The index was up as much as 7.6% in early morning trading before giving back some of those gains in midday trading. The Dow Jones industrial average gained 1.2% and the Standard & Poor's 500 index rose 1%.
Early trading got a boost from President Obama, who said during a press conference Tuesday night that his administration was "beginning to see signs of progress" from various initiatives, including those designed to stimulate lending in the banking industry.
Durable-goods orders rose 3.4% in February, ending six months of declines, according to the Commerce Department. Most economists had expected another decline.
The agency also reported that sales of new homes rose 4.7% in February from a month earlier, though the median sales price fell an astounding 18.1%. The annual rate of sales last month outpaced expectations by 12.3%. In another good sign for the U.S. economy, the Mortgage Bankers Association last week reported that refinancings fueled a 32.2% surge in mortgage applications.
Frank Barkocy, the director of research at Mendon Capital Advisors, said the data helped the bank index rebound from its 7.25% decline Tuesday. "We're not out of the woods yet, and I don't think we're going straight up from here, but the general direction is good," he said.
Barkocy said news that Obama will meet with a dozen bank executives Friday suggests the administration is attempting to strike "a conciliatory tone" with the industry in the face of harsh rhetoric from Congress.
"He is trying to soften some of the negativity coming from Capitol Hill," he said.
Larry Kantor, the head of research at Barclays Capital, also took a bullish view, encouraging investors in a note to "become more aggressive" in the stock market.
"We believe that the recent rally in financial markets signifies an inflection point," he wrote. "We are recommending that investors … take risk over a broader range of assets."
Michael O'Boyle, an investment banker with Sterne Agee & Leach Inc., attributed some of the midday retreat in bank shares to slack demand in a $24 billion government bond auction and to investors' willingness to take profits. "And we still have first-quarter results ahead of us," which are likely to disappoint, O'Boyle cautioned.
Individual companies by and large sent out positive vibes.
Bank of America Corp. shares rose 6.7%. Kenneth D. Lewis, B of A's chairman and chief executive, told the Los Angeles Times that he wants to begin repaying $45 billion in federal funds as early as next month. The Times reported Wednesday that the repayment could be completed over the course of this year and could start after the regulators complete a stress test of the Charlotte company.
A B of A spokesman confirmed the comments.
Despite Lewis' remarks, Moody's Investors Service downgraded B of A's senior debt, to A2 from A1, over concerns the company may need another round of capital from the government.
International Bancshares Corp. shares rose 5.9% after the Laredo, Tex., company publicly touted its capital strength and earnings capability, blaming recent moves by investors to unload its shares to short-selling. On Tuesday a columnist for Seeking Alpha suggested that International could be a "prime candidate" for seizure by regulators, largely over a high concentration of construction loans.
JPMorgan Chase & Co. shares rose 8.2%. The New York company filed a lawsuit Tuesday against Washington Mutual Inc. and the Federal Deposit Insurance Corp. asking a federal bankruptcy court not to interfere with its purchase of Wamu's banking operations. On Friday Wamu filed a lawsuit against the FDIC seeking $13 billion in damages and claiming the agency overstepped its bounds by forcing an asset sale to JPMorgan Chase in September.
Huntington Bancshares Inc. tumbled 6.9% after the Columbus, Ohio, company said it would follow the lead of Citigroup Inc. by asking investors who hold preferred stock to convert their shares into common stock. Though in Citi's case the move should shore up common equity, it would also dilute the value of shares for those who already own common stock. Citi shares fell 2%.