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By Wallace Witkowski, MarketWatch SAN FRANCISCO (MarketWatch) — U.S. financial stocks dropped Monday, with Regions Financial Corp. and Citigroup Inc. leading the sector lower, on concerns about how banks may be held to higher capital requirements as economic growth slows.
WSJ's David Enrich reports the stable management surrounding J.P. Morgan CEO Jamie Dimon is about to undergo a significant shake-up.
The Financial Select Sector SPDR ETF /quotes/zigman/246222/quotes/nls/xlf XLF -1.91% , which tracks the financial stocks in the S&P 500 Index /quotes/zigman/3870025 SPX -1.08% , closed down 1.9%. Not one financial component in the S&P 500 finished with a gain Monday.
The sector was a close second for worst performing on the S&P 500, just behind the energy sector, which finished down 2%.
In a speech Friday at the Peterson Institute for International Economics in Washington, D.C., Federal Reserve board member Daniel Tarullo outlined ways that systemically important financial institutions can carry additional capital requirements.
Given that the Dodd-Frank financial overhaul Congress passed last summer doesn’t specify how banks must carry additional capital requirements, Tarullo suggested the requirement should be calculated based on how badly the bank’s failure would affect the financial system as a whole.
The Fed official also called for requirements to be transparent and replicable, that they grow with the institution, that required capital be of high quality, and that standards be comparable to international ones.
Citigroup /quotes/zigman/5065548/quotes/nls/c C -4.47% shares dropped 4.5% Monday, for a 13.9% loss for the current quarter so far. Dow-component Bank of America Corp. /quotes/zigman/190927/quotes/nls/bac BAC -3.99% shares declined 4% to close at a new 52-week low of $10.83.
Reuters
Shares of regional banks took on similar losses with Regions Financial /quotes/zigman/351634/quotes/nls/rf RF -4.87% dropping 4.9%, and Zions Bancorp. /quotes/zigman/80277/quotes/nls/zion ZION -3.19% falling 3.2%.
Kevin Fitzsimmons, managing director of equity research at Sandler O’Neill, said banks are facing headwinds from dwindling revenue because of a lack of loan growth and extra costs to comply with the Dodd-Frank Act.
“The last few weeks have shown a dismal lack of growth and a downbeat feeling on the economy,” Fitzsimmons said. “That gets translated over to banks as a proxy of the economy.”
The analyst said bank lending is down because demand from creditworthy borrowers is dwindling.
Regions Financial may have led bank stocks down because it is one of the few remaining big banks that owes the Treasury’s Troubled Asset Relief Program, to the tune of about $3.5 billion, Fitzsimmons said. That casts even more uncertainty on what the bank would need to hold under capital requirement rules.
After the closing bell, Regions reported it agreed to buy a $1 billion credit-card portfolio from FIA Card Services at an undisclosed price. More on Regions credit-card portfolio buy.
Wells Fargo & Co. /quotes/zigman/239557/quotes/nls/wfc WFC -2.23% shares, which finished the day down dropped 2.2%, gained the spotlight after Dick Bove at Rochdale Securities lowered his rating on the bank to sell from neutral.
Bove cited Tarullo’s call for “meaningful” capital requirements along with weakening economic factors such as unemployment and housing prices, as his basis for the downgrade.
In his report, Bove said “new liquidity requirements may be forcing the bank to build high balances of low return assets. This is having a negative impact on the bank’s margins that is not likely to change.”
Other Dow Jones Industrial Average /quotes/zigman/627449/delayed DJI -0.50% financial components suffered losses with shares of J.P. Morgan Chase & Co. /quotes/zigman/272085/quotes/nls/jpm JPM -2.50% shares down 2.5%, Travelers Cos. Inc. /quotes/zigman/455344/quotes/nls/trv TRV -0.20% down 0.2%, and American Express Co. /quotes/zigman/217470/quotes/nls/axp AXP -1.01% shares down 1%.
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/quotes/zigman/3870025 /quotes/zigman/5065548/quotes/nls/c /quotes/zigman/190927/quotes/nls/bac /quotes/zigman/351634/quotes/nls/rf /quotes/zigman/80277/quotes/nls/zion /quotes/zigman/239557/quotes/nls/wfc /quotes/zigman/627449/delayed /quotes/zigman/272085/quotes/nls/jpm /quotes/zigman/455344/quotes/nls/trv /quotes/zigman/217470/quotes/nls/axp Wallace Witkowski is a MarketWatch news editor in San Francisco. View the original article here
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