This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

5 Reasons to Avoid Bank Stocks

Stocks in this article: BAC C JPM BCS HBC RBS CS

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- As of this writing, threats that Greece will default on its debt have European markets in turmoil. Rumors of a bailout by France and Germany were denied by both governments.

European Bank Stocks Plummeting

As a result, European banks like Société Generale, Crédit Agricole and Deutsche Bank are watching their stock values plummet. Absent an eleventh-hour agreement from other nations in the eurozone to prop up Greece, however, many analysts are predicting another European recession that will echo in markets worldwide. European bank stocks can only suffer additional losses if that occurs.

U.K. Bank Reforms a 'Net Negative'

Meanwhile, U.K. banks were hit Monday with a bill for more than $11 billion each year to put into place sweeping new reforms proposed by the Independent Commission on Banking. The new rules would require banks to segregate their retail activities from their investment banking operations. The "ring-fenced" retail divisions would be required to operate independently and to conduct all transactions with their investment banking counterparts at arm's length. Additionally, the largest banks would be required to hold as much as 20% in equity and loss-absorbing debt against their assets. According to The Wall Street Journal, bank analysts at Citigroup (C) call the proposal a "net negative" for U.K. banks. Again, U.K. banks can expect their stock prices to fall if the proposal ultimately goes through.

Capital Requirements Put More Pressure on Banks

The U.K. is not alone in seeking to impose additional capital requirements on banks. The Basel Group of global bank regulators' capital rules are intended to shore up the financial system by making banks accrue risk-absorbent "core tier one" capital up to at least 7% of risk-weighted assets; the largest banks would be required to reach 9.5%. Reuters reports that Jamie Dimon, chief executive of JPMorgan Chase (JPM) (a bank that would be required to meet the 9.5% level) has called for the U.S. to consider pulling out of Basel, calling Basel's capital requirements "blatantly anti-American" and criticizing liquidity rules that discount government-backed, mortgage backed securities commonly held by U.S. banks. If Dimon's criticisms are well-founded, the additional capital requirements may put additional pressure on U.S. bank stock prices.

U.S. Banks' Declining Profits

It would be hard for the timing to be much worse. The London Telegraph reported this week that Citibank analysts are calling for U.S. bank profits to drop by an average of 45% in the third quarter. According to Citibank, Goldman Sachs (GS) will lose the most, though profits at JPMorgan Chase, Morgan Stanley. Lazard and Bank of America (BAC) were also predicted to fall.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs