Uncertainty and fears of an economic slowdown following Tuesdays terrorist attacks in New York could send banking stocks lower when the U.S. equity markets reopen Monday, but analysts believe the disaster actually could provide a boost for the sector.
U.S. markets did not open on Tuesday because of the attacks and they have remained closed since the World Trade Center and other buildings in New Yorks financial district were obliterated. In addition, many of the nations most important financial services firms are headquartered or have offices in the area, and have been unable to conduct business as usual.
Bond trading resumed Thursday, but federal regulators and market officials decided Thursday to reopen the equity markets Monday.
Equity investors reacting to Tuesdays attacks for the first time are expected to be in a selling mood, and bank stocks are unlikely to be spared, analysts at SunTrust Robinson Humphrey said in a research note late Wednesday.
Although other world stock markets fell 5% or more on Tuesday, those that were open on Wednesday mostly recovered. In our view, there is no financial crisis at hand, said analysts Christopher Marinac, Jefferson Harralson, and Jennifer Demba at SunTrust Robinson Humphrey.
But the trio said bank shares could suffer because of uncertainty about the health of the financial system, economic worries, and ensuing issues with credit quality deterioration, business contraction, and slower revenue/EPS growth.
Nonetheless, the Robinson Humphrey analysts believe bank stocks could benefit long-term. While perverse, banks typically benefit from most disasters as increased commercial spending occurs for repair/rebuilding of damaged areas.
Michael Mayo, an analyst at Prudential Securities, was upbeat.
Aside form the obvious destruction of buildings and branches and the disruption of the markets, the banking system itself from an external perspective does not appeared to have skipped a beat, he said. He credited quick action by the Federal Reserve with helping to maintain confidence and said he believes there are no factors that should lead to a lack of confidence.
Other observers noted that worries about the equity market could drive investors away from stocks and toward money market and other savings accounts. The trend could help many banks, especially those whose businesses are most dependent on traditional deposit and loan activities.
However, questions remained about how the large Wall Street investment banks would fare. The largest firms, including Goldman Sachs & Co., Lehman Brothers and others, are scheduled to report earnings in two weeks and some analysts have been expecting disappointments because of weakness in the capital markets businesses they depend on.
