Friday, May 21, 2010

Bank stocks remained under pressure Thursday after the U.S. Senate failed to put an end to the long-running debate $BAC $WFC

By Kerry Grace Benn Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)-

-Bank stocks remained under pressure Thursday after the U.S. Senate failed to put an end to the long-running debate on the financial overhaul bill and concerns lingered about exposure to Europe's debt woes. The stocks have been hurt in recent weeks by the ongoing debates over the bill, which has undergone a number of changes and amendments, as investors seeking clarity about what might be included in the eventual law haven't gotten what they're looking for. Another Senate vote to end debate on the bill is scheduled for 2:30 p.m. EDT. In addition to Washington's fuzzy outlook for new financial system regulations, the precarious fiscal condition of some European countries has also weighed on financial stocks in recent weeks. Economists have worried about government defaults on debt in such countries as Greece, Portugal and Spain, and investors continue to be unsure which U.S. banks, if any, could suffer direct or indirect losses from deeper troubles in Europe. Bank of America and J.P. Morgan Chase each reported holding less than $2 billion in exposure to Greece as of March 31. J.P. Morgan said in a quarterly filing with the Securities and Exchange Commission that its exposure to the five most-troubled nations is "modest relative to the firm's overall exposures." Financial stocks have fallen steadily all day, despite hints that the vote to end debate may pass as several senators who dissented Wednesday came out and said they would agree or might change their minds.

Citigroup Inc. (C) was recently down 4.1% at $3.66, while Bank of America Corp. (BAC) fell 3.8% to $15.70, J.P. Morgan Chase & Co. (JPM) declined 1.9% to $38.61, Morgan Stanley dipped 2.9% to $26.26 and Goldman Sachs Group Inc. (GS) slipped 1.7% to $137.70. The cost to insure the senior debt of financial firms is up. Citi's credit default swaps were last quoted at 205 basis points, up from Wednesday's closing level of 195 points, according to Phoenix Partners Group. Goldman CDS are higher at 215 basis points versus 190 basis points Wednesday. Rochdale Securities analyst Richard Bove said the Senate is likely making things worse for the stocks. He compared the current environment with late 2008, when senators were suggesting the U.S. financial system had collapsed and needed to be nationalized or allowed to fail. Those remarks accelerated the stocks' fall then, because the senators removed all confidence from the banking system, and that's happening again now, he said. "My gut tells me that if we didn't have this [regulatory] bill at this point, the market would be in a lot better shape even with problems in the euro zone," Raymond James analyst Anthony Polini said. "I don't think it's going to be a frightful bill for the industry," he said, but the lack of closure likely postpones the next leg of the bull market and perhaps even hurts the economic recovery. The Senate voted 57-42 just before the market closed Wednesday on a procedural measure to limit debate on the bill, falling short of the 60 votes needed. Bove said he thinks the motion will probably pass Thursday because senators will realize they are hurting the market the more they comment negatively and continue to draw out the negotiations on the bill. But he also said bank stocks could fall another 10% to 12% in what could be a retracement of as much as 25% in total. He expects that to be a short pause, and said the sector is cheap and earnings should increase eightfold over the next five years. Bove said there are still ways to play the sector by looking at what isn't being regulated as heavily. For example, the market will likely stay away from consumer lenders like Regions Financial Corp. (RF) and SunTrust Banks Inc. (STI) because the government is "coming out with the biggest guns against consumer finance." But if the government isn't regulating underwriters of new securities as much, look to Lazard Ltd. (LAZ) and Jefferies Group Inc. (JEF), he said. Recently, Regions fell 5.3% to $7.41 and SunTrust declined 2.6% to $26.83. Lazard was off 2.9% to $32.66 and Jefferies slid 3.9% to $23.47. Meanwhile, credit card companies were getting a boost--or not falling as sharply as the broader market--after the failure of a proposal by Sen. Sheldon Whitehouse (D., R.I.) that would have allowed individual states to impose interest-rate caps on credit cards and other lending by out-of-state banks. FBR Capital Markets wrote in a note that shares of the credit-card networks, MasterCard Inc. (MA) and Visa Inc. (V), along with issuers Capital One Financial Corp. (COF), American Express Co. (AXP) and Discover Financial Services (DFS), would benefit. MasterCard rose 1.3% to $205.15, while Visa gained 1.4% to $74.01. Capital One slipped 0.4% to $42.22, Discover dipped 1.6% to $13.38 and American Express slid 1.8% to $39.43. -By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353;

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