Bank Stocks Pummeled on Shutdown Day 7

NEW YORK ( TheStreet) -- Major U.S. banks led the market lower on Monday, which was the seventh day of the partial shutdown of the federal government.

The broad indices all saw declines of nearly 1%, but the KBW Bank Index ( I:BKX) saw a much larger decline of 1.7% to 61.93, with all 24 index components down for the session. Big banks seeing shares decline nearly 2% included Bank of America, which closed at $13.81; Citigroup, at $48.19 and Capital One, which closed at $69.93.

Please see TheStreet's Big 4 Bank Earnings Preview for more on the rough third-quarter earnings season ahead for Bank of America, Citigroup, JPMorgan Chase ( JPM) and Wells Fargo ( WFC).

The major story this earnings season will be the decline in mortgage lending revenue, as rising long-term interest rates have slowed refinancing applications from their elevated pace. Atlantic Equities analyst Richard Staite on Sept. 23 estimated that the eight large-cap U.S. banks he covers, including the "big four" would see a combined 45% sequential and 55% year-over-year drop in mortgage revenue. Staite also expects the group to see a 20% year-over-year decline in trading revenue.

Please see TheStreet's earnings preview for credit card lenders for plenty of detail on what to expect from Capital One and its major competitors.

The Debit Limit Battle

As most investors know, the big battle in Washington between the Republican-controlled House of Representatives and the Democrat-controlled Senate is not limited to an agreement for a fiscal 2014 budget.

The government can certainly be run without a budget, if the two houses agree to pass the necessary spending bills. Even more importantly, the government is fast approaching its $16.7 trillion debt limit. U.S. Treasury Secretary Jack Lew in a letter to House Speaker John Boehner (R., Ohio) on Sept. 28 said the "extraordinary measures" the Treasury was taking to maintain its borrowing power will "be exhausted no later than Oct. 17," unless the $16.7 trillion federal debt limit is raised.

The House Republicans have passed four spending bills over the last week to keep parts of the government open, but these bills have been rejected by Senate Majority Leader Harry Reid (D., Nev.) because the Republicans continue to insist on tying an eventual full budget agreement to a one-year delay in the implementation of the Affordable Care Act, which is President Obama's signature legislative accomplishment.

When asked on Sunday during an ABC interview by George Stephanopoulos whether he was "not prepared to schedule a clean bill on government funding," Boehner said "There are not the votes in the House to pass a clean continuing resolution."

The Democrats in the House believe that there would be enough support by members of both parties at least to raise the debt limit, according to several media reports.

Obama during a visit to the Federal Emergency Management Agency's headquarters in Washington on Monday said he believed the House would pass a "clean" bill to reopen the government if Boehner were to allow a vote to go to the floor, according to a Wall Street Journal report. "If Republicans, Speaker Boehner, are saying there aren't enough votes they should prove it," the president said.

In economic news on Monday, the Federal Reserve reported that consumer credit in the U.S. during August expanded at an annual rate of 5.4%, increasing from a rate of 4.15% the previous month. Revolving debt declined at an annual rate of 1.2%, continuing its trend during the years following the credit crisis, but the rate of decline slowed from 2.6% in July. Nonrevolving consumer credit during August expanded at an annual rate of 8%, accelerating from 6.8% in July.

Total consumer debt during August increased by $13.6 billion to $3.023 trillion. Economists polled by Thomson Reuters had on average estimated consumer debt would increase by $12 billion.

RELATED STORIES:




-- 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 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.

More from Investing

When Is It 'Worth It' to Work With a Financial Advisor?

When Is It 'Worth It' to Work With a Financial Advisor?

Amazon, Microsoft and Google Face Backlash over ICE, Military Deals

Amazon, Microsoft and Google Face Backlash over ICE, Military Deals

3 Great Stock Market Sectors Millennials Should Invest In

3 Great Stock Market Sectors Millennials Should Invest In

Why Millennials Are Ditching Stocks for ETFs

Why Millennials Are Ditching Stocks for ETFs

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says