NEW YORK — Financial stocks rallied broadly after last week's selloff as Euro-zone finance ministers created a nearly $1 trillion support plan for countries facing financial meltdown.
That move comes on the heels of last week's EUR110 billion bailout package for Greece, which started the fears about European sovereign debt that has now spiraled well beyond Greece to other countries such as Portugal and Spain. Concerns that European banks, major holders of the sovereign debt, are sitting on shaky assets had battered the sector and was wreaking havoc on U.S. financials last week.
The E.U.'s plan was boosting financial stocks, but analysts thought most of the shares wouldn't be rallying the way they are if they hadn't lost huge amounts last week amid the market's freefall.
European banks got the biggest boost, with gains for many American depositary shares, including Spain's Banco Santander, Allied Irish Banks PLC, Bank of Ireland, ING Groep NV, Barclays PLC and Royal Bank of Scotland Group PLC approaching and surpassing 20%.
Those gains appeared to trickle down to U.S. financials as well.
The banks are "roaring back this morning...more on relief that there won't be huge write-offs near term," Rochdale Securities analyst Richard Bove said. But it still seems likely the banks will have to write down European debt — though maybe not in the near term — and see business levels weaker in Europe than would have been the case, he said.
The E.U.'s move buys about six to nine months of time, when officials hope some of the struggling companies will be able to get their economies back in line, Bove said, but usually in cases like this, that doesn't happen. It usually takes more time and more intervention in the form of debt renegotiations to get countries' recoveries going, he said. That extra time means banks get a little extra breathing room from credit write-downs, which instead of being imminent now likely won't be seen for months.
Investors are going to use this opportunity to trade banks and take extra profits, FIG Partners analyst Chris Marinac said. But the reality is, banks are eventually going to trade on fundamentals and have a long, slow recovery.
It's "encouraging to see people coming back to the stocks today," he said.
Among the gainers Monday, Bank of America Corp. and Morgan Stanley rose 6.4% to $17.21 and 3.8% to $28.81, respectively. Citigroup Inc. rose 5.5% to $4.22, Goldman Sachs Group Inc. gained 1.5% to $145.17 and JPMorgan Chase & Co. increased 3.6% to $42.23.
Regional banks gained, with those that have been considered troubled at the top of the list. Marshall & Ilsley Corp. (MI) rose 7.3% to $8.75 and Fifth Third Bancorp grew 7.5% to $14.31. Huntington Bancshares Inc. (HBAN) increased 5.5% to $6.35 and SunTrust Banks Inc. gained 5.2% to $28.89.
Credit-card issuers and processors also gained Monday, with issuers Discover Financial Services, Capital One Financial Corp. and American Express Co. leading gains. Discover rose 5.5% to $14.85, Capital One increased 4.8% to $44.14 and American Express grew 6.3% to $43.15. Processors Visa Inc. and MasterCard Inc. also rose 4.7% to $86.14 and 4.9% to $233.99, respectively.
Cross-border transactions are very profitable for all those companies, Jefferies & Co. analyst Rick Shane said, so greater confidence in Europe and the European consumer is beneficial to the stocks. A cross-border transaction is any international transaction with a person using a card in a different country than where the card was issued.
American Express probably benefits most, he said, because it has more business travelers and more high-end private customers.
Counterparty risk related to financial institutions has also been reduced by Europe's plan, he said.
Insurers such as Genworth Financial Inc. and American International Group Inc. also rose, with Genworth gaining 11% to $16.13 and AIG increasing 4.7% to $40.52.