April 23, 2024

Stocks & Bonds: Critical Reports on Banks Weigh on Financial Shares

A Senate report released late Wednesday criticized rating agencies and banks, like Goldman Sachs, for their practices during the financial 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.

In response, the banking sector was down almost 1 percent Thursday. Among the decliners were some of the 14 mortgage servicers that had signed consent agreements promising to overhaul their foreclosure practices.

“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 banks signing a consent agreement, said it would add as many as 3,000 employees to meet the new regulatory demands. Its shares were down 2.8 percent at $44.97. Among other major banks, Citigroup fell 1.6 percent to $4.43; Bank of America was down 1.1 percent to $13.13; Wells Fargo declined 1.7 percent to $30.15; and Goldman Sachs lost 2.7 percent to $155.79.

Major indexes closed the day mixed. The Dow Jones industrial average rose 14.16 points, or 0.12 percent, to 12,285.15, while the Standard Poor’s 500-stock index added less than a point to close at 1,314.52. The Nasdaq composite slipped 1.3 points, or 0.05 percent, to 2.760.22.

Alan B. Lancz, the president of Alan B. Lancz Associates, said indexes might have gotten late-day help from initial public offerings, like that of the car-sharing company Zipcar, which gained 56 percent.

“As we headed into the last hour they were still showing significant gains,” Mr. Lancz said. “That maybe gave a spark to the buyers.”

Google rose $2.23, to $578.51, in the regular session but lost more than 5 percent in after-hours trading after reporting a quarterly profit that missed forecasts.

Shares of consumer staples were up 0.63 percent as a sector. Supervalu gained more than 16 percent, to $10.61, after forecasting fiscal-year earnings above Wall Street expectations. Kraft Foods closed at $32.95 and Coca-Cola at $68.31, each gaining more than 1 percent.

While the banking sector’s responsibility for the mortgage crisis drew most of the attention, analysts said other factors also weighed on the sector.

Nomura analysts said in a research note that a downward revision 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 that showed 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.

Downward revisions to economic growth, like the recent cut by the International Monetary Fund in its United States growth estimate, may have discouraged investors, Mr. Valeri added.

But the bond market has benefited. The yield on the 10-year Treasury bond was little changed Thursday at 3.5 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.”

Article source: http://feeds.nytimes.com/click.phdo?i=020af463424071306512cea4fab8ab8e

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