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Bank Stocks Firm on 'Comcast Day'

NEW YORK (TheStreet) -- Most stocks of large-cap U.S. banks ended higher on a strong Thursday for the broad market, with investors cheering a big merger.

The KBW Bank Index (I:BKX) was up 0.2% to 68.52, with 14 of the 24 index components ending with gains.  The index is down slightly this year, following two years of very strong recovery, with a 35% gain during 2013 and a 30% gain during 2012.  Sector winners included Capital One Financial (COF), which was up 1% to $72.37, and JPMorgan Chase (JPM), which rose 0.9% to close at $58.03.  The loser among large-cap U.S. banks on Thursday was Morgan Stanley (MS - Get Report), with shares sliding 0.8% to close at $19.89.

The Dow Jones Industrial Average (^DJI) was up 0.4%, while the S&P 500 (^GSPC) rose 0.6% and the NASDAQ Composite (^IXIC) ended with a gain of 0.9%, after Comcast (CMCSA - Get Report) agreed to acquire Time Warner Cable (TWC) in an all-stock deal valued at $45 billion.

Shares of Comcast were down over 4% to $52.97, while Time Warner Cable was up 7% to close at $134.81.

Comcast's move looks like a big win -- assuming the deal gains regulatory approval -- because it won't leave the combined firm saddled with debt the way so many large buyouts have. Comcast is paying the equivalent of $158.82 a share to acquire Time Warner Cable, trumping a lower bid by Charter Communications (CHTR), which would have come to $132 a share for Time Warner shareholders, while being heavily financed with debt.  The debt-free nature of the Comcast/Time Warner Cable deal also means that Wall Street bankers won't see the fee bonanza they would have loved.

But there will be some fees to split.  JPMorgan Chase, Paul J. Taubman of PJT Capital and Barclays (BCS) acted as financial advisors for Comcast, while Morgan Stanley,  Allen & Co., Citigroup (C) and Centerview Partners were Time Warner's financial advisers.

Judging from Time Warner's closing price -- 15% shy of the estimated deal value of $158.82 a share -- many investors think the deal will face a rough road to regulatory approval.

Economic News

Must Read: Goldman Leads Banks Higher After Yellen Testimony

The Department of Labor said initial unemployment claims for the week ended Feb. 8 totaled 339,000, increasing by 8,000 over the previous week's figure of 331,000, which wasn't revised. The four-week moving average for initial jobless claims was 336,750, up 3,500 from the previous week.

Economists polled by Thomson Reuters on average had estimated new claims would come in at 330,000. UBS economist Maury Harris had estimated new claims would increase to 335,000, writing on Thursday in a note to clients before the figures were released.

Also on Thursday, the Census Bureau said seasonally adjusted U.S. retail sales fell by 0.4% in January following a downwardly revised 0.1% during December. January sales were up 2.6% from January 2013, while total sales from November through January were up 3.4% from a year earlier.

Federal Reserve Chair Janet Yellen was scheduled for a second day of testimony on Friday, this time before the Senate Banking Committee.  However the committee's meeting was postponed because of snow. Yellen's testimony would likely have mirrored her testimony before the House Financial Services Committe on Tuesday.

During the Tuesday testimony, Yellen said the Federal Open Market Committee was likely to keep cutting the Federal Reserve's monthly bond purchases "in further measured steps" during subsequent policy meetings. The central bank is currently purchasing a net $65 billion in long-term U.S. Treasury bonds and agency mortgage-backed securities each month.

The FOMC is looking to move past the "QE3" bond purchases and get back to relying on the federal funds rate as its main policy tool. The short-term federal funds rate has been locked in a target range of zero to 0.25% since late 2008. The FOMC has repeatedly said that this "highly accommodative" policy was likely to remain in effect until the U.S. unemployment rate fell below 6.5%. We're getting close to that target, since the unemployment rate improved to 6.6% in January from 6.7% in December.  But crossing the unemployment threshold "will not automatically prompt an increase in the federal funds rate, but will instead indicate only that it had become appropriate for the Committee to consider whether the broader economic outlook would justify such an increase," Yellen said.

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Follow @PhilipvanDoorn

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 TheStreet.com 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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