Sector Snap: Regional bank stocks extend sell-off
NEW YORK — Regional bank stocks fell sharply Wednesday, extending a recent losing streak as concerns about rising loan losses remained high ahead of the government’s unemployment report.
Among the biggest decliners were SunTrust Banks Inc., which tumbled $1.39, or 6.4 percent, to $20.34 in afternoon trading, and Huntington Bancshares Inc., which fell 23 cents, or 5.4 percent, to $4.02.
Investors fear that bank stocks, which led the market’s rally on the way up, may have outpaced the companies’ earnings potential, considering that loan losses are expected to keep rising for the foreseeable future. Businesses and consumers have struggled to pay off debt this year amid falling home prices and rising unemployment, saddling banks with higher loan losses.
The market is anxiously awaiting the Labor Department’s report on August job losses, due Friday. Last month, investors cheered an unexpected dip in unemployment and are eager to see if the rate of job losses continues to decline.
Worries about the stability of banks have heightened since the Federal Deposit Insurance Corp. said last week its list of problem banks rose to more than 400 in the second quarter, the highest level since June 1994. On Tuesday, rumors about a possible big bank failure triggered a wave of selling in the broader market.
Eighty-four banks have failed this year, compared with 25 last year and just three in 2007. Hundreds more are expected to fall in the coming years largely because of souring commercial real estate loans. Regional banks hold a large concentration of these loans.
With several bank stocks having doubled or even tripled in value since the stock market began rallying in early March on the belief the economy was turning around, investors have begun to question whether the surge has been warranted given the challenges the industry still faces.
In a note to clients on Wednesday, Stifel, Nicolaus & Co. analyst Christopher Mutascio weighed in on the valuations of several bank stocks in relation to his expectations for normalized earnings. Of the 10 large-cap banks in his analysis, Mutascio believes BB&T Corp. and U.S. Bancorp are the most expensive, while PNC Financial Services Inc. and Comerica Inc. are currently the cheapest.
BB&T shares slid 38 cents to $26.26, while U.S. Bancorp shed 29 cents to $20.95.
PNC Financial lost 18 cents to $40.24 and Comerica dropped 61 cents, or 2.4 percent, to $25.06.
He also said SunTrust Banks Inc. and Regions Financial Corp. “appear to be richly valued.”
Regions shares lost 24 cents, or 4.3 percent, to $5.30.
Cleveland-based KeyCorp fell 23 cents, or 3.8 percent, to $5.92, and Fifth Third Bancorp fell 25 cents, or 2.4 percent, to $10.01.
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