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Bank Stocks Keep Rising, Led by KeyCorp

Stocks in this article: KEY

NEW YORK (TheStreet) -- KeyCorp (KEY) of Cleveland was the winner on a strong Thursday for bank stocks, with shares rising 2% to close at $13.62.

The S&P 500 pushed further into record territory as U.S. unemployment claims declined and after the European Central Bank kept its key short-term interest rate at 0.25%. ECB president Mario Draghi during a press conference tried to provide some comfort to investors by saying the eurozone's economic links to Ukraine were "not as important as to suggest strong contagion."

The House of Representatives overwhelmingly voted to support President Obama's efforts to provide $1 billion in loan guarantees to Ukraine. The Senate is expected to vote next week on the aid package. Crimea's government said it would hold a referendum on March 16 on a plan already approved by the region's parliament to secede from Ukraine and become part of Russia.

The KBW Bank index (I:BKX) rose 0.8% to close at 70.68, with all but two of the 24 component stocks ending with gains. This was the third straight gain for the KBW Bank Index, which is now up 2% this year, following returns of 35% in 2013 and 30% in 2012.

Economic news was mixed. The Department of Labor said initial unemployment claims for the week ended March 1 came in at 323,000, down from the previous week's revised figure of 349,000. The previous week's estimate was raised only slightly from 348,000. The four-week moving average for unemployment claim was 336,500, down 2,000 from 338,500 the previous week.

Economists polled by Thomson Reuters had estimated initial claims for the week ended March 1 would total 335,000.

The Census Bureau on Thursday said U.S. factory orders during January had fallen 0.7% during January to $483 billion. Economists had expected orders to decline by 0.5%.

Also on Thursday, the Bureau of Labor Statistics released a revised figure annualized figure for fourth-quarter labor productivity growth of 1.8%, down from its previous estimate of 3.2%. Economists had expected the revised number to come in at 2.4%.

Looking ahead to March 26

Following the completion of the Federal Reserve's annual stress tests on March 20, the regulator on March 26 will announce the results of its Comprehensive Capital Analysis and Review (CCAR), which is another round of tests, factoring in big banks' plans to deploy excess capital through dividend increases, share buybacks and acquisitions.

With major banks expected to follow the Fed's announcement with their own capital deployment announcements late on March 26, March 27 could be quite a day for bank stocks, as investors react to expected dividend increases and stock-repurchase announcements.

KeyCorp is among the regional banks expected by KBW to receive approval for capital deployment of at least 75% of earnings from the second quarter of 2014 through the first quarter of 2015.

KBW analyst Christopher Mutascio estimates KeyCorp will announce an increase in its quarterly dividend by a penny to 7 cents, and to announce plans to buy back up to $513 million in common shares, increasing from the $426 million repurchase program the company announced in March 2013.

This chart shows the performance of KeyCorp's stock against the KBW Bank Index and the S&P 500 since the end of 2011.

KEY Chart data by YCharts

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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