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Bank Stocks: Financial Losers

NEW YORK ( TheStreet) -- The nation's large banks came up losers on Monday amid summer trading doldrums and investor anticipation of a slew of economic reports over the rest of the week.

The broad indices ended lower as investors looked ahead to major economic events. For starters, the Federal Open Market Committee will meet beginning on Tuesday, and on Wednesday afternoon release its usual monetary policy statement.

The Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008. The central bank has also been making monthly purchases of $85 billion in long-term securities since September, in an effort to spur economic growth by holding long-term interest rates down. Investors have pushed the yield on 10-year U.S. Treasury bonds up to 2.59% from 1.70%, and recent comments from Fed Chairman Ben Bernanke have led some investors to expect the central bank's bond-buying to be curtailed as early as September.

In a note to clients on Monday, Deutsche Bank's research team wrote "While we do not expect any material changes to the FOMC statement, we could see a formal update to the exit strategy principles originally laid out in the June 2011 meeting."

Then on Wednesday, the Commerce Department will release its advance estimate of second-quarter gross domestic product. On Thursday, the Institute for Supply Management will release its Purchasing Managers Index (PMI) for July. On Friday, the Bureau of Labor Statistics will release its unemployment report for July.

The rise in the market yield for the 10-year bond has done little over the short-term to expand banks' net interest margins. What bankers are looking for is a parallel rise in rates, which can only happen when the Fed relents and raises the federal funds rate. The FOMC has repeatedly stated that its "highly accommodative" monetary policy would be appropriate at least until the U.S. unemployment rate falls below 6.5%, barring a significant rise in inflation. The June unemployment rate was a stubbornly high 7.6%, so Friday could be a day of major market volatility, if there are surprises in the unemployment report.

Economists polled by Thomson Reuters expect the unemployment rate for July to improve slight, declining to 7.5%.

The KBW Bank Index (I:BKX) was down 1% to close at 65.39, with all 24 index components down for the session.

Big banks showing 2% declines included KeyCorp (KEY - Get Report) of Cleveland, with shares closing at $12.17, and Regions Financial (RF - Get Report) of Birmingham, Ala., closing at $10.06.

Large banks with losses of over 1% included Bank of America (BAC - Get Report), which closed at $14.52, Morgan Stanley (MS - Get Report), closing at $27.31, and Goldman Sachs (GS - Get Report), with shares closing at $163.17.


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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BAC $15.67 -0.13%
GS $180.13 -0.32%
KEY $13.26 -0.23%
MS $32.31 0.06%
RF $9.08 0.50%


Chart of I:DJI
DOW 16,800.41 +23.98 0.14%
S&P 500 1,980.54 -6.51 -0.33%
NASDAQ 4,744.9090 -36.3550 -0.76%

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