Bank Stocks Losers on Disappointing Jobs Indicator (Update 1)

Updated from 1:57 p.m. ET with market close information and comment from House Financial Services Committee chairman Jeb Hensarling (R., Texas).

NEW YORK ( TheStreet) -- Several of the nation's largest banks saw their shares slide on Wednesday, following a disappointing employment report for April.

Shares of Goldman Sachs ( GS) were down over 2% to close at $$142.61, while JPMorgan Chase ( JPM) was down 2% to close at $48.01. Citigroup ( C) was down nearly 2% to close at $45.87.

Shares of Bank of America ( BAC) recovered a bit from earlier losses, closing at $12.14, down 1.4% for the session.

The broad indices all ended with 1% declines, following the release of employment growth numbers for April by Automated Data Processing, which provided a disappointing setup to the Labor Department's monthly report on nonfarm payrolls on Friday.

Private sector employment in the U.S. grew by 119,000 jobs in April, declining from 131,000 in March, according to the ADP National Employment Report, produced in collaboration with Moody's. The March number was revised downward from 158,000. Economists polled by Thomson Reuters estimated the April employment growth number would come in at 150,000.

"Goods-producing employment rose by 6,000 jobs in April, its slowest pace of growth in seven months," ADP said in its press release. The number of manufacturing jobs declined by 10,000 during April, for the first decline in the category in three months, and the largest decline since September. The payroll processor also said that in April, "service-providing jobs increased by 113,000, the weakest pace of growth in seven months."

On a brighter note, ADP said "though it accounted for most of the weakness in goods production job growth in March, construction growth picked up in April and the industry added 15,000 jobs over the month."

"Job growth appears to be slowing in response to very significant fiscal headwinds," Moody's chief economist Mark Zandi said in the press release, adding that "tax increases and government spending cuts are beginning to hit the job market. Job growth has slowed across all industries and most significantly among companies that employ between 20 and 499 workers."

The "fiscal headwinds" include defense budget cuts, some of which were caused by federal budget sequestration beginning March 1, that include mandatory budget cuts of $85.4 billion for fiscal 2013. The major tax increase this year is the end of the temporary 2% reduction in the Social Security payroll tax.

The KBW Bank Index ( I:BKX) was down over 1% to close at 56.09, with all 24 index components showing afternoon price declines.

Also on Friday, there were several reports that President Obama was set to nominate Rep. Mel Watt (D., N.C.) as the new permanent director for the Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae ( FNMA) and Freddie Mac ( FMCC).

Watt is a member of the House Financial Services Committee, and if he is able to survive likely resistance from Republican members of the Senate, his appointment is expected to push Fannie and Freddie to allow principal reduction as part of mortgage loan modification. This type of modification has been resisted by acting FHFA director Edward Demarco.

House Financial Services Committee Chairman Jeb Hensarling (R., Texas) said in a statement later on Wednesday that "Mel Watt is a senior and well respected member of the committee, but he is not the issue. The issue is the administration's continued inaction and refusal to put forward an actual plan to reform our nation's unsustainable housing finance system."

Fannie Mae and Freddie Mac were taken under government conservatorship in September 2008. Hensarling said that following "the largest, most costly taxpayer-funded bailout in history . . . the administration's response to the crisis, the Dodd-Frank Act, did nothing to reform these failed mortgage giants."

"Unlike the administration, our committee is working to create a sustainable housing finance system that ends taxpayer bailouts and abolishes Fannie and Freddie as government-sponsored enterprises," Hensarling said. "This is a heavy lift, especially with divided government. That is why leadership from the administration is so crucial, and why the administration's silence and refusal to release a reform plan is so disappointing."

Breckenridge Insurance Group/OSC CEO Tracey Carragher said later in a statement that Watt's "experience with issues of housing and homeowner finance and his Congressional record as a consumer champion qualify him well for this role." OSC is a provider of lender-placed insurance to cover lenders' collateral risk, when borrowers allow homeowner's insurance policies to lapse, or the lender is unable to obtain proof of insurance coverage. Lender-placed insurance (LPI) is also known as force-placed insurance.

"Rep. Watt will face many challenges ahead, but we urge him to maintain the agency's focus on lender-placed insurance reform," Carragher said. "We hope that he will advance the agency's recent initiatives to investigate and end inappropriate practices in the LPI industry, which have been detrimental to homeowners and taxpayers."

FOMC Statement: A Slight Change in Language

Following its two-day meeting, the Federal Open Market Committee (FOMC) Wednesday afternoon released its monthly statement on monetary policy. As expected, the FOMC said it would keep the short-term federal funds rate in a range of zero to 0.25%, where it has been since late 2008.

The FOMC said the Federal Reserve would continue its monthly purchases of $45 billion in long-term U.S Treasury securities, and $40 billion in agency mortgage-backed securities. But there was an important change in the language of the statement from the previous month. While the Fed has repeatedly said it would continue its security purchases at the same monthly levels, since September, in the latest statement, the FOMC said "The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes."

The language in previous statements didn't include the words "increase or reduce," and with several recent indicators of slowing U.S. economic growth, the FOMC may decide next month to bump up its securities purchases, thus increasing its stimulus.

Following the FOMC statement release, Hensarling said in another statement that "like a patient who has been administered too many antibiotics, the economy is less and less responsive to the Fed's continued monetary stimulus. America is nearly five years into the Fed's historically unprecedented interventionist policies and there is very little gain to show for it."

"It's time for the Fed to acknowledge the simple truth that the challenges facing our economy today cannot be solved by more monetary stimulus," Hensarling said. "If the Fed wants to help the economy, it needs to adopt a more predictable, rules-based policy that aims for long-term price stability."

-- 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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