September 29, 2023

Critical Reports on Banks Prompt Fall in Financial Shares

A Senate report on Wednesday criticized ratings agencies and banks, like Goldman Sachs, for their practices during the mortgage crisis, while federal regulators also released a report saying that banks did a poor job of handling the flood of foreclosures. The regulators said they would impose penalties, without giving the timing or amount.

The banking sector was down almost 1 percent Thursday. Among the decliners were some of the 14 mortgage servicers that have signed consent agreements promising changes related to the regulators’ report.

“The uncertainty over this whole mortgage mess is contributing” to the decline in the financial sector, said Anthony G. Valeri, a senior vice president and market strategist for LPL Financial. “I think the market is waiting to see what the fines will be.”

“But it is a short-term concern for the market until we ultimately find out what the exact dollar amount is,” he said.

JPMorgan Chase, one of the servicers signing the agreement, said that it was adding as many as 3,000 employees to meet the new regulatory demands. Its shares were down 2.75 percent. Citigroup fell 1.3 percent; Bank of America was down 0.79 percent; Wells Fargo declined 1.7 percent, and Goldman Sachs lost 2.7 percent.

Indexes had been lower through most of the day but regrouped as the session neared a close. The Dow Jones industrial average closed 0.12 percent or 14.16 points higher, while the Standard Poor’s 500-stock index added less than a point and the Nasdaq lost slightly more than a point.

Alan B. Lancz, the president of Alan B. Lancz Associates, said the market might have gotten a late-day help from initial public offerings, like Zipcar, which was up 56 percent.

“As we headed into the last hour they were still showing significant gains,” he said. “That maybe gave a spark of catalyst to the buyers and that is why you see a fairly stronger day compared to what it looked like on the outset.”

Google also strengthened just ahead of its earnings, which supported the Nasdaq, he said.In addition, shares of consumer staples were up 0.56 percent as a sector, with Kraft Foods and Coca-Cola each gaining more than 1 percent.

While it was the banking sector that drew the most attention, analysts said other economic factors were at work.

Nomura analysts said in a research note that downward revisions to gross domestic product, negative revenue and loan growth, and an unpredictable regulatory backdrop have discouraged investors.

“We have spent the past few weeks on the road visiting investors,” the analysts said. “The overwhelming feedback on banks has been why bother.”

“It’s just hard to get people to care about bank stocks right now,” Nomura said.

An increase in unemployment filings last week also weighed on the markets as well as a monthly index on producer prices, which showed that energy costs were responsible for almost all of the increase in March.

Economists are concerned that increases in wholesales prices will be passed along and damp spending by consumers.

Recent downward revisions to economic growth, like that from the International Monetary Fund, may have damped sentiment, Mr. Valeri added.

But the bond market has benefited. The benchmark 10-year yields were little changed at 3.46 percent.

“We thought going into this week that it would be a tough week for Treasuries given the fresh supply,” Mr. Valeri said, referring to an auction of 10-year bonds. “A new theme emerging this week that seems to have trumped the data, and even the auctions, was the potential of a slowdown in the economy.”

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