The billionaire’s remarks followed a grim outlook on the economy from Federal Reserve Chairman Jerome Powell, which weighed on the sector. Analysts have also expressed concern that banks will cut dividends, with Morgan Stanley (NYSE:MS) saying Goldman Sachs Group Inc (NYSE:GS).’s dividend is most at risk in a bear case, and Atlantic Equities downgrading Wells Fargo (NYSE:WFC) & Co. due to the looming specter of a lower dividend. On Tuesday, Fed Governor Randal Quarles said the Fed could curtail Wall Street banks’ ability to pay dividends by cranking up the amount of capital they need to maintain due to the pandemic.
The KBW Bank Index closed down 4.7%, with CIT Group (NYSE:CIT) Inc., Capital One Financial (NYSE:COF) Group and Wells Fargo — which shed 6.3% to close at the lowest since June 2009 — among leading decliners. JPMorgan Chase (NYSE:JPM) & Co. and Citigroup Inc (NYSE:C). were among relative outperformers, though both declined more than 3%. Regional banks underperformed as well, with the KBW Regional Banking Index sliding 5.5% while the S&P 500 fell 1.8%.
Banks are particularly sensitive to economic upheaval and credit issues and have underperformed since concern about Covid-19 began surfacing. Both KBW bank indexes have tumbled more than 40% since Feb. 20, when fear about the pandemic started to intensify, versus a 16% drop for the S&P 500.
Even so, there are some who see reasons to like banks at the moment.
Earlier, Wells Fargo analyst Mike Mayo wrote that a meeting with President Donald Trump’s former economic adviser Gary Cohn, who was also a top Goldman Sachs executive, reinforced his view that the largest banks are better-positioned for customer benefits from government programs, reallocating resources and leveraging scale from technology.
Mayo said the main positive takeaway from talks with Cohn was that government stimulus to stem the effects of the Covid-19 crisis may be “infinite,” with potential for “wave after wave of support for the economy and unemployed workers.”
And Fundstrat analyst Vito Racanelli wrote that he sees opportunity in “quality regional banks that should come out of this crisis with their profitability and business outlook intact for the long term.”
“Financial stocks remain the bleeding edge of the bear market, even as some areas of the market, notably technology and growth stocks, have recovered nicely,” Racanelli said. “If there is an economic recovery, and I think there will be, then banks will eventually recuperate, too.”
He highlighted Little Rock, Arkansas-based Bank OZK (NASDAQ:OZK) as a “well-run bank with a profitable and well-positioned geographic footprint and whose shares are cheaper than they’ve been in a long while.” Bank OZK fell 5.8% on Wednesday and has dropped 32% since Feb. 20.
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