NEW YORK ( TheStreet) -- Financial stocks surged this week on a combination of factors including positive commentary about capital management as well as AIG (AIG - Get Report) and Citigroup's (C - Get Report) further decoupling from the government.
The Financial Select Sector SPDR (XLF) rose 3.6% this week to $15.75 -- the exchange-traded fund's highest closing level since mid-May.
Investors were hit with two pieces of positive news on the bailout front.
First, the U.S. Treasury Department announced Tuesday that it was selling its remaining stake in Citi's common stock. Taxpayers ended up making a profit of $12 billion on the government's $45 billion investment under the Troubled Asset Relief Program. The government still owns various warrants and trust preferred securities in Citi.Citi shares closed the week up approximately 7% to $4.77. Another large government-owned institution, AIG, hit a new intraday 52-week-high of $49.86 on Friday. AIG shares surged this week following the news that the insurer agreed to a revised bailout-repayment agreement with the government. On Thursday, AIG's largest private holder of stock, Fairholme Capital, said in a regulatory filing that it had acquired 2 million additional shares, increasing its stake to 30%. Following the repayment of TARP by the biggest institutions that needed help, investors should start to see more regional banks like SunTrust Banks (STI - Get Report) return bailout funds.
Regional bank stocks surged this week on positive outlooks for next year. The Keefe Bruyette & Woods Bank Stock Index (BKX.X), which tracks the largest 25 U.S. commercial banks, jumped 6% this week to close at $50.92. During the Goldman Sachs Financial Services conference on Tuesday and Wednesday, bank executives focused on capital management, including increasing dividends and stock buybacks, and improved lending conditions, according to a note by Goldman analysts on Wednesday. The government's progress on AIG and Citi likely means that it will focus its attention on regional banks that still hold TARP money early next year. SunTrust shares rose 7.1% this week. Regions Financial (RF - Get Report) also rose 6.3% over the past week.