Bank stocks are back

A number of encouraging signs hint that equities are safer in the financial sector.

By InvestorPlace May 30, 2013 11:20AM

iplogoBank sign © John Foxx, Stockbyte, Getty Images

By Jeff Reeves

In a big symbolic move this week, Moody's removed the U.S. banking system from its "negative outlook" category for the first time since 2008.

Investors shouldn't place much stock in credit ratings agencies -- after all, they were very late to the subprime crash. But the upgrade to the banking sector (belated, as usual) is noteworthy because it signals that investors should already be seizing opportunities in financials.

If you haven't noticed, banking stocks are back. Take a look at these returns among major financial companies since Jan. 1:

  • Bank of America (BAC): up 15%

  • Wells Fargo (WFC): up 18%

  • PNC Financial (PNC): up 22%

  • JPMorgan Chase (JPM): up 24%

  • Goldman Sachs (GS): up 28%

  • Regions Financial (RF): up 30%

  • Morgan Stanley (MS): up 30%

  • Citigroup (C): up 32%

Those are just the big boys, too. In the smaller arena of regional banks, there is a lot more stability as well.

This week, the "Unofficial Problem Bank List" maintained by Bill McBride over at Calculated Risk declined to 767 institutions with assets of $283.7 billion. A year ago, the list of troubled banks totaled 931 institutions worth $358 billion -- that's a significant improvement, and another sign that distress is slowly leaving the sector.

Furthermore, the number of failed banks that have entered into FDIC receivership is just 13 so far in 2013 -- totaling just north of $300 million. In comparison, there were a whopping 140 bank failures in 2009 and 157 in 2010, worth about $250 billion combined. If we can see the failure rate cool just slightly, and if we finish the year under 25 closed banks, it will be the "best" year since a mere three banks closed in 2007 before the Great Recession.

The housing rebound has juiced the mortgage market as well as broader financials, but a focus on more creditworthy customers and efficiencies have propped up earnings too. JPMorgan actually just set a record for earnings in April, showing you how healthy some of the big players are.

There are still troubles, of course. The top line is growing slowly (if at all) for many financials as the economy slogs away with only incremental improvement. Banks are inherently cyclical, and we need a more robust recovery to truly help them hit their stride.

Also, some financial stocks still have rickety balance sheets. BB&T (BBT) was one of two financial institutions (government ward Ally (GMA) was the other) that failed Federal Reserve stress tests in March -- so there still is some systemic risk, and investors need to do their research.

Furthermore, Citigroup and Bank of America continue to build up rainy day reserves instead of delivering capital back to shareholders, paying a meager dividend of a penny a quarter. Worse, they have stopped even asking for significant increases because they don't expect approval. If you're focused on income, this could be a nonstarter.

But those negatives aside it's clear that the financial sector is on the mend. And judging by the big returns in 2013, bank stocks appear to be back.

Jeff Reeves is the editor of and the author of "The Frugal Investor's Guide to Finding Great Stocks." Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

More from InvestorPlace

May 30, 2013 12:16PM
Maybe for you but not for me. There's no way in hades that I'll buy any of those crooks equities. They screwed  the entire US with their securitization of mortgages and that's a fact. Screw the banks.
May 30, 2013 2:04PM
To the (TBTF) Criminal Banking Cartel who continue to RAPE ,PILLAGE AND PLUNDER the middle class ! DIE BANK OF AMERICA DIE ! How is that for a investment strategy !
May 30, 2013 6:54PM

It's interesting how the "big" banks take all the blame for the failures coming out of the mortgage securitization melt down, do any of the borrowers (who ultimately failed to pay their loans) bear any responsibility...even the ones who lied about their assets, income, job status etc. (the loan liars as Senator Dodd called them).


Perhaps what congress should do is make all "sub-prime" loans illegal!

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.