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TheStreet Open House

Bank Stocks Weaken; Fed Announces Stress Test Results Date

NEW YORK (TheStreet) -- Most bank stocks showed weakness Thursday, following a mixed batch of economic reports and the Federal Reserve's announcements of two key dates in March for large-cap bank stocks investors.

The broad indices ended with moderate declines, following a new record for the S&P 500 on Monday. The KBW Bank index (I:BKX) was down 6% to 68.28, with all but six of the 24 index components showing losses. The winner among major U.S. banks was First Niagara Financial Group (FNFG), with shares rising 1.1% to $8.92. The loser was Morgan Stanley (MS), with shares giving up 2.2% to close at $29.66.

Jim Cramer in an article on Real Money discussed the broad market's pop on Monday following followed the weekend news of the removal of Ukraine President Viktor Yanukovych -- considered by many to be a thumb in the eye of Russian President Vladamir Putin.

Cramer wrote that "waiting this one out" might be best:

You should never buy on the way up because you think you have to. You buy on the way down because you think you have to.

That's called discipline.

So you wait. During this period, individual stocks have come unglued when they shouldn't have. They are giving you chances, and not all of the chances are bogus.

I'm simply waiting. Exercising some patience. Sticking with what's worked most of the time, even if it means not keeping pace with Netflix (NFLX) and Yelp (YELP) and Chipotle (CMG).

It's a painful not to buy on a spike, as painful as it is not to buy on the way down. But sometimes you just have to wait.

In economic news, S&P Dow Jones Indices said home prices during the fourth quarter were up 11.3% from a year earlier, although prices were up only 0.3% from the third quarter. During December, the S&P/Case Schiller 10-City Composite home-price index was "relatively unchanged" from November, while the 20-City Composite was down 1% for the second consecutive month.

Despite the softening of price gains toward the end of 2013, "The S&P/Case-Shiller Home Price Index ended its best year since 2005," said David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices, in a press release. "However, gains are slowing from month-to-month and the strongest part of the recovery in home values may be over."

The Federal Housing Finance Agency -- which took Fannie Mae (FNMA) and Freddie Mac (FMCC) under conservatorship in 2008 -- on Tuesday said U.S. housing prices rose 1.2% during the fourth quarter from the previous quarter, which was the tenth consecutive quarterly increase "in the purchase-only, seasonally adjusted index."

The FHFA's Home Price Index is calculated using data from mortgage loans sold to Fannie and Freddie, so the agency is using a different type of sample form what Dow Jones Indices uses. Home prices during the fourth quarter were up 7.7% from a year earlier, and prices in December were up 0.8% from November, according to the FHFA.

Also on Tuesday, the Conference Board said the Consumer Confidence Index had fallen to 78.2 in February from 79.4 in January. A darker outlook among surveyed consumers indicates "concern over the short-term outlook for business conditions, jobs, and earnings," said Lynn Franco, Director of Economic Indicators at The Conference Board, I a press release.

"While expectations have fluctuated over recent months, current conditions have continued to trend upward and the Present Situation Index is now at its highest level in almost six years (April 2008, 81.9). This suggests that consumers believe the economy has improved, but they do not foresee it gaining considerable momentum in the months ahead," Franco added.

Major Annual Events for Bank Stock Investors

The Federal Reserve on Tuesday said it would announce the results of its annual stress tests of major banks and other financial firms on March 20, following up with the results of its Comprehensive Capital Analysis and Review (CCAR) on March 26.  CCAR is the more important event, because most of the nation's largest banks will follow up that announcement with their own announcements of plans to deploy excess capital through the first quarter of 2015.  Most of the capital deployment will come in the form of dividend increases and share buybacks.  Most of the big banks have been reducing their count of outstanding shares through buybacks over the past few years, which boosts earnings-per-share, supporting higher stock prices.

Morgan Stanley analyst Betsy Graseck in a note to clients Tuesday wrote that she expected all banks covered by her firm to "pass" the stress tests, showing the ability to remain well-capitalized by maintain Tier 1 common equity ratios of at least 5.0% under the Fed's  "severely adverse" economic scenario.

"Banks are better positioned going into 2014 CCAR, and we look for payouts to increase again this year," Graseck wrote, with Citigroup (C) "well positioned for a capital return hike given last year's 2nd best post stress test capital ratio, coupled with its lowest capital return in our
coverage." The analyst expects Citi to raise its quarterly dividend on common shares to a nickel from a penny, and for the Federal Reserve to approve stock buybacks of up to $6.457 billion from the second quarter of 2014 through the first quarter of 2015.  That would be a major increase from the Fed's approval of $1.200 billion in Citigroup common-share buybacks last year.

JPMorgan Chase (JPM) was approved for $6.000 billion in stock buybacks following last year's CCAR, but Graseck estimates the company's buybacks from the second quarter of 2013 through the first quarter of 2014 will total just $2.313 billion.  Graseck expects the Fed once again to to approve up to $6.000 billion in JPM buybacks through the first quarter of 2015, with JPMorgan actually completing $4.505 billion in buybacks.  She also expects JPMorgan to boost its quarterly dividend to 41 cents from 38 cents. -- Written by Philip van Doorn in Jupiter, Fla.

2014 Is Year of Cutting for JPMorgan

Stop Being Allergic to Saving

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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