Bank Stocks Rise As U.S. Labor Force Grows

NEW YORK (TheStreet) -- State Street (STT) was the winner among large-cap U.S. banks on Friday, with shares rising 3.5% to $68.23, as most bank stocks ending the week on a positive note.

The Dow Jones Industrial Average ^DJI rose 1.1%, while the S&P 500 was up 1.3% and the NASDAQ Composite added 1.7%, despite the screaming headlines of disappointing January employment numbers. The KBW Bank Index (I:BKX) rose 0.8% to 67.77, with all but four of the 24 index components ending with gains.

The Bureau of Labor Statistics on Friday said U.S. nonfarm payrolls rose by 113,000 during January, which was well short of the consensus estimate of 189,000, among analysts polled by Thomson Reuters. The January figure was also well below the average 2013 employment growth rate of 194,000 per month.

The U.S. unemployment rate declined to 6.6% in January from 6.7% in December.

But the best news on Friday was that the labor participation rate during January rose by 0.2% to 63.0%. The Bureau of Labor Statistics in its press release said, "After accounting for the annual adjustment to the population controls, the civilian labor force rose by 499,000 in January. Those are encouraging numbers, standing in contrast to the previous month's numbers.

Investors in early January had reacted negatively when the December unemployment rate declined significantly to 6.7% from 7.0% in November, since that "improvement" was driven by a 0.2% decline in the labor participation rate to 62.8%. The labor participation rate declined 0.8% during 2013, with a large number of people leaving the work force.

Peter Cardillo, chief market economist at Rockwell Global Capital, in an interview on the trading floor of the New York Stock Exchange said, the January Employment Situation Report "is not really all that discouraging, in fact it's very encouraging, because what we saw here was the participation rate actually improve a bit and we saw a down-tick in total unemployment... and this time it's actually a bit more of a reality as opposed to people leaving the jobs market.

"What the data today is telling us is the labor market is continuing to improve... but unfortunately it's been derailed due to seasonal and other factors, which obviously impact last month's number," Cardillo added.

Cardillo predicts the U.S. economy will begin to show job creation of 200,000 to 250,000 a month during 2014.

State Street

Shares of State Street of Boston are down 8% this year, following a 59% return during 2013. The shares trade for 2.6 times tangible book value and 11.7 times the consensus 2015 earnings estimate of $5.83 a share, according to Thomson Reuters Bank Insight. The consensus 2014 EPS estimate is $5.12.

State Street's 2013 return on average assets (ROA) was 0.95%, down slightly from 1.06% in 2012. The company's return on average tangible common equity (ROTCE) increased to 18.59% during 2013 from 17.37% the previous year.

The trust and custody bank grew its EPS to $4.62 during 2013 from $4.20 in 2012, as it grew fee revenue, reduced expenses and reduced its average share count by 6%, after repurchasing 24.7 million shares. The company following the March 2013 Federal Reserve stress tests received regulatory approval to repurchase up to $2.1 billion in shares through the first quarter of 2014.  Please see TheStreet's earnings coverage for more on State Street's financial performance.

State Street CFO Michael Bell said during the bank's earnings conference call on Jan. 24, "We continue to believe that our common stock repurchase program combined with dividends is the best way to return value to shareholders and return of capital remains a top priority for us."

Based on a quarterly payout of 26 cents, State Street's shares have a dividend yield of 1.52%.

This table shows the performance of State Street's stock against the KBW Bank Index and the S&P 500 since the end of 2011:

STT Chart data by YCharts

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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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