This Day On The Street
Continue to site
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

Bank Stocks Are Strong on Manufacturing Boost

NEW YORK (TheStreet) -- Capital One Financial (COF - Get Report) was the sector winner on a strong day for bank stocks, with shares rising 2.3% to close at $73.83.

The broad indices all ended with solid gains after the Federal Reserve said industrial production in the United States had increased by 0.6% during February, following a decline of 0.2% in January. The increase for February came in well ahead of consensus estimate of 0.2%, among economists polled by Thomson Reuters. The February increase was the largest since August, and manufacturing during the month was up 2.8% from a year earlier.

Also on Monday, the Empire State manufacturing index for March came in at 5.6, up from 4.5 in February. An index reading above zero indicates expansion.

Economic news was mixed, however, with the National Association of Home Builders/Wells Fargo Housing Market Index for March rising one point from February to 47. An index reading below 50 indicates the majority of builders see market conditions as poor.

Must Read: Bank of America Leads Sector Down, Expects Slower Loan Growth

The KBW Bank Index (I:BKX) rose 1.2% to 70.40, with all 24 component stocks ending with gains.


Investors seemed to take the weekend vote in Crimea to secede from Ukraine and join the Russian Federation in stride, as the U.S. the European union placed sanctions on selected individuals from Russia and Ukraine, including advisors to Russian President Vladimir Putin and former Ukrainian president Viktor Yanukovych, who was ousted last month and now is in Russia.

The expected annexation of Crimea may not signal the end of uncertainty in Eastern Europe, especially when considering the ethnic Russian populations in other former Soviet republics. Protecting Russian speakers from "threats" was Putin's main pretext for Russia's move into Crimea.

"Renewed ethnic clashes could be a catalyst for Russian military intervention beyond Crimea, while the revival of negotiations for an EU Association Agreement could also inflame Russian concerns," Citigroup analyst Tina Fordham wrote in a note to clients on Friday.

"A key positive signpost would be a shift in stance from Moscow, which has thus far declined to negotiate with the new government in Kiev," Fordham wrote.

Fannie and Freddie

Also on Monday, shares of government-sponsored mortgage enterprises (GSEs) Fannie Mae (FNMA) and Freddie Mac (FMCC) showed great volatility after Senate Banking Committee Chairman Tim Johnson (D., S.D.) and ranking committee member Sen. Mike Crapo (R., Idaho) over the weekend proposed the Housing Finance Reform and Taxpayer Protection Act of 2014, which would wind-down the two companies.

Fannie and Freddie were taken under government conservatorship at the height of the credit crises in September 2008. The GSEs' common and preferred stocks remained publicly traded, but values plunged because dividends to non-government shareholders were suspended, and because it appeared highly unlikely at the time at the GSEs would eventually return to being highly profitable.

Under their original bailout agreements, Fannie and Freddie were required to pay the U.S. Treasury 10% annual dividends on the government-held senior preferred shares. However, in August 2012, after the GSEs had returned to profitability and after they had stopped increasing their borrowings from the government, the bailout agreement was changed so that all GSE profits since then have been swept paid to the government, in excess of minimal capital cushions.

Following their March dividend payments, Fannie and Freddie will have paid total dividends of $199 billion on $189.4 billion in senior preferred shares held by the Treasury. Factoring in warrants that were handed to the government to acquire up to 79.9% of the GSEs common shares, Rafferty Capital Markets analyst Richard Bove last recently estimated the government's return on its investment in Fannie and Freddie was $238 billion.

But there's no mechanism in place that allows Fannie or Freddie to repurchase any of the senior preferred shares held by the government, and the dividend sweep also keeps the GSEs from building up capital that could eventually enable them to restore dividends to junior preferred shareholders.

And the Johnson-Crapo bill makes no mention of Fannie or Freddie's common or junior preferred shareholders in its 442 pages.

Congress is leaving it to the courts to decide whether non-government shareholders of the GSEs will get a seat at the table, as the future of U.S. home financing is eventually decided.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
COF $79.04 0.52%
FNMA $2.09 -1.88%
AAPL $118.03 -0.71%
FB $105.41 -0.31%
GOOG $748.15 -0.02%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs