By Philip van Doorn, MarketWatch
Bank shares skidded Thursday as investors turned bearish after the Federal Reserve said it would keep official interest rates near zero for years amid lasting economic pain. Investors may be overreacting, according to at least one longtime bank analyst.
On Thursday, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -2.97% fell 1,862 points (or 6.9%) to 25,128.17, for its worst decline since March 16, when it dropped 2,997 points. The benchmark S&P 500 Index /zigman2/quotes/210599714/realtime SPX -2.30% fell 5.9% and the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -1.39% declined 5.3%.
The KBW Bank Index comprises 24 stocks of universal and large regional U.S. banks. Here’s how all 24 fared during the early minutes of trading Thursday, with Goldman Sachs /zigman2/quotes/209237603/composite GS -2.17% and Morgan Stanley /zigman2/quotes/209104354/composite MS -4.41% added to the list so that the “big six” U.S. banks are all included:
|Company||Ticker||Headquarters city||Price change - June 11||Price change - 2020||Price change - 2019|
|Citigroup Inc.||/zigman2/quotes/207741460/composite C||New York||-13.4%||-39.4%||53.5%|
|CIT Group Inc.||/zigman2/quotes/200594362/composite CIT||New York||-12.6%||-52.3%||19.2%|
|Fifth Third Bancorp||/zigman2/quotes/207561596/composite FITB||Cincinnati||-11.8%||-35.8%||30.6%|
|Citizens Financial Group Inc.||/zigman2/quotes/205410375/composite CFG||Providence, R.I.||-10.2%||-39.7%||36.6%|
|Bank of America Corp||/zigman2/quotes/200894270/composite BAC||Charlotte, N.C.||-10.0%||-32.1%||42.9%|
|Regions Financial Corp.||/zigman2/quotes/202396577/composite RF||Birmingham, A.||-10.0%||-33.6%||28.3%|
|Wells Fargo & Co.||/zigman2/quotes/203790192/composite WFC||San Francisco||-9.8%||-50.2%||16.8%|
|Comerica Inc.||/zigman2/quotes/207245846/composite CMA||Dallas||-9.8%||-47.5%||4.5%|
|Truist Financial Corp.||/zigman2/quotes/200481602/composite TFC||Charlotte, N.C.||-9.7%||-33.5%||30.0%|
|PNC Financial Services Group Inc.||/zigman2/quotes/203416310/composite PNC||Pittsburgh||-9.6%||-32.7%||36.5%|
|Goldman Sachs Group Inc.||/zigman2/quotes/209237603/composite GS||New York||-9.1%||-15.6%||37.6%|
|M&T Bank Corp.||/zigman2/quotes/207957637/composite MTB||Buffalo, N.Y.||-9.0%||-37.4%||18.6%|
|Huntington Bancshares Inc.||/zigman2/quotes/209314988/composite HBAN||Columbus, Ohio||-8.8%||-37.1%||26.5%|
|People's United Financial Inc.||/zigman2/quotes/200304796/composite PBCT||Bridgeport, Conn.||-8.8%||-31.0%||17.1%|
|Morgan Stanley||/zigman2/quotes/209104354/composite MS||New York||-8.5%||-12.8%||28.9%|
|Zions Bancorporation N.A.||/zigman2/quotes/207521274/composite ZION||Salt Lake City||-8.4%||-35.2%||27.4%|
|J.P. Morgan Chase & Co.||/zigman2/quotes/205971034/composite JPM||New York||-8.3%||-30.3%||42.8%|
|U.S. Bancorp||/zigman2/quotes/206934678/composite USB||Minneapolis||-8.1%||-39.0%||29.7%|
|SVB Financial Group||/zigman2/quotes/200548254/composite SIVB||Santa Clara, Calif.||-8.1%||-18.8%||32.2%|
|Capital One Financial Corp.||/zigman2/quotes/204480509/composite COF||McLean, Va.||-7.9%||-35.7%||36.1%|
|State Street Corp.||/zigman2/quotes/209758976/composite STT||Boston||-7.6%||-22.7%||25.4%|
|Northern Trust Corp.||/zigman2/quotes/207066008/composite NTRS||Chicago||-6.4%||-22.8%||27.1%|
|First Republic Bank||/zigman2/quotes/200683073/composite FRC||San Francisco||-6.3%||-10.5%||35.2%|
|Bank of New York Mellon Corp.||/zigman2/quotes/200171276/composite BK||New York||-5.7%||-25.1%||6.9%|
|New York Community Bancorp Inc.||/zigman2/quotes/207630974/composite NYCB||Westbury, N.Y.||-4.1%||-13.6%||27.7%|
Scroll the table to see the data. Click on the tickers for more about each bank, including news and business profiles.
Varied sources of bank earnings
Odeon Capital Group analyst Richard Bove quoted a colleague as saying: “Apparently, it is true that the only factor that impacts bank stock prices is interest rates,” in a report early Thursday.
Bove refuted that assertion: “For example, the period of lowest interest rates, in modern times, over a sustained period, in the United States was from 2008 to 2015. In this seven-year period, bank earnings declined in 2009 and 2014. They increased in 2010, 2011, 2012, 2013, and 2015. They hit all-time records in 2013 and 2015 and were close to an all-time record in 2014.”
Bove went on to point out that banks have differing business models and predicted that the best industry performers during the expected period of very low interest rates would be those with “the ability to acquire resources and sell products,” and those that could maintain the best loan quality.
He cited the tremendous increase in money supply, from the action of the Federal Reserve and other central banks, which has helped lead to increased trading revenue and debt underwriting for investment banks.
Bove has “buy” ratings on J.P Morgan Chase /zigman2/quotes/205971034/composite JPM -4.42% , Bank of America /zigman2/quotes/200894270/composite BAC -4.45% , Citigroup /zigman2/quotes/207741460/composite C -3.24% , KeyCorp /zigman2/quotes/202852742/composite KEY -5.14% , Goldman Sachs /zigman2/quotes/209237603/composite GS -2.17% and Morgan Stanley /zigman2/quotes/209104354/composite MS -4.41% , among the banks listed on the table above, with “sell” ratings for M&T Bank Corp. /zigman2/quotes/207957637/composite MTB -5.80% and Capital One /zigman2/quotes/204480509/composite COF -5.73% .
However, a factor that may weigh on bank stocks over the next two weeks is the annual stress tests and regulatory review of large banks’ capital plans. The Federal Reserve will announce the results at 4:30 p.m. ET on June 25.
KBW analyst Brian Kleinhanzl expects none of the 34 banks whose capital plans will be reviewed by the Fed to request permission to repurchase shares during the 12-month period ended June 30, 2021. He expects the total payout ratio (dividends on common shares plus stock buybacks divided by earnings) to be 56% over that period, declining from an estimated 139% for the previous 12-month period.