Updated from 4:23 p.m. ET with the ABA's decision to withdraw its request for a suspension of Volcker Rule regulations banning banks' investments in CDOs backed by trust preferred securities.
NEW YORK (TheStreet) -- Many large-cap bank stocks pulled back on Monday, despite some good economic news.
PNC Financial Services Group (PNC) led the sector down, with shares sliding 0.9% to close at $77.51. Bank of America (BAC) was down 0.8% to close at $15.54 and Morgan Stanley (MS) was down 0.7% to close at $30.85.
The broad indices ended mixed, with one more day to cap off the best year for the S&P 500
The KBW Bank Index (I:BKX) on Monday pulled back 0.2% to 68.97, with the 24 index components split between winners and losers. But the banks are looking at another banner year, with the index rising 34%, after a gain of 30% during 2012.
In economic news on Monday, the National Association of Realtors said pending sales of previously owned homes in the U.S. rose 0.2% during November to a Home Sales Index reading of 102.1, from a downwardly revised reading of 101.5 for October. Pending sales during November were down 1.6% from a year earlier. Economists polled by Reuters on average estimated the November figure would rise by 1.5%.
While the pending home sales figure for November was disappointing to many economists, this was the first increase in six months.
"Going forward, many industry insiders remain optimistic for robust activity in 2014 as the threat of rising rates has subsided with the Fed's reaffirmed commitment to keep rates low even after initiating the first step in the tapering process at the most recent December FOMC meeting. And, modest but positive improvement in the labor market gives hope that job creation will spur income growth and that in turn will spur continued demand and ability to finance home purchases," Sterne Agee chief economist Lindsey Pigza wrote in a note to clients Monday.
Community bankers were waiting for the federal regulators response to a lawsuit filed last week by several community banks and the American Bankers Association, seeking to overturn the Volcker Rule's ban on on CDOs backed by trust preferred securities. The regulators were directed by the court to respond to the industry's challenge by Monday.
The problem with the regulations to implement Volcker, which were finalized by federal bank regulators on Dec. 10, is that the apparent ban on the CDOs in question will cause dozens of community banks to book large fourth-quarter losses as the securities are moved from held-to-maturity to held-for-sale.
The bank regulators apparently hadn't considered the accounting requirements of the Securities and Exchanged Commission when they pointed out in a FAQ published Dec. 19 that the banks might be able to restructure the CDOs before July 2015, which is when they would be required to sell them. Accounting rules require the banks immediately to move the securities to held-for-sale status and mark them to market, if there is any chance they may have to be sold.
The bank regulators and the SEC on Friday said they were reconsidering the Volcker regulations' requirement for the banks to part with the CDOs in question, and would come to a decision by Jan. 15. They did not respond to the court complaint.
The FDIC early Monday sent a helpful letter to all U.S. banks, suggesting that "any actions [by the regulators] in January 2014 that occur before the issuance of December 31, 2013, financial reports... should be considered when preparing those financial reports."
The ABA responded to the regulators' new plan to review Volcker's CDO restrictions on Monday by dropping its court request for a temporary suspension of the portion of Volcker regulations banning the CDOs backed by trust preferred securities, according to a Bloomberg report. The ABA and group of community banks did not withdraw their lawsuit against the regulators, however.
-- Written by Philip van Doorn in Jupiter, Fla.
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