US banks tumble as weak economic data sparks recession fears (updated)
05/08/2024 16:46
(Adds analyst comment in paragraphs 4-5, context in paragraph
12, graphic on big banks' stock performance; Updates prices
throughout)
By Manya Saini and Saeed Azhar
Aug 5 (Reuters) - U.S. bank stocks slumped on Monday as
fears of a recession sent investors fleeing from a sector
closely tied to the health of the economy and toward safe-haven
assets.
Citigroup C.N led big bank losses with a near 5% fall.
Wells Fargo WFC.N , Morgan Stanley MS.N and Goldman Sachs
GS.N fell about 4% each, while JPMorgan Chase JPM.N and Bank
of America BAC.N declined 2.7% and 3.5%, respectively.
Lenders typically feel the squeeze as recessions heighten
concerns over credit losses due to higher unemployment, while
loan demand - a key factor in profitability - also takes a
beating.
"The economy is potentially slowing more than people
appreciated, based on last week's economic data, that first and
foremost is the biggest driver as it impacts loan growth, income
growth, credit quality," said Jason Goldberg, banking analyst at
Barclays.
Investors have been jittery since a crisis of confidence hit
the sector last year, in part due to higher interest rates, and
took down three major regional players.
Customers Bancorp's CUBI.N shares fell nearly 6%, while
Huntington Bancshares HBAN.O dropped 4%. Banc of California
BANC.N , Citizens Financial CFG.N , and US Bancorp USB.N
declined between 3.2% and 4%.
The S&P 500 Banks Index .SPXBK , tracking a basket of
large-cap bank stocks, was last down 3.3%, while the KBW
Regional Banking Index .KRX fell 3.5%.
The U.S. unemployment rate jumped to a near three-year high
of 4.3% in July amid a significant slowdown in hiring,
heightening fears the labor market was deteriorating and
potentially making the economy vulnerable to a recession.
The economic weakness will likely seep into the sector's
outlook after a mixed sector-quarter earnings season, where
executives from top U.S. banks remained divided over the Fed's
future path on interest rate cuts and flagged deterioration in
consumer health.
"This may be a few-day blip. I don't think anybody's ready
to call this the beginning of a several-quarter downturn in the
markets or the economy," said Stephen Biggar, banking analyst at
Argus Research.
"High rates have kind of worn out their welcome, and at this
point, lower rates would stimulate loan growth, and would also
take some of the pressure off the deposit costs, and at the same
time, help the economy avoid a downturn or recession," he
added.
The S&P 500 Banks Index is down 7.2% month-to-date, compared
with a 3.2% decline in the benchmark S&P 500 .SPX , as of last
close. The KBW Regional Banking Index .KRX has lost 7.6% over
the same period.
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(Reporting by Manya Saini in Bengaluru and Saeed Azhar in New
York; Editing by Sriraj Kalluvila)
((Manya.Saini@thomsonreuters.com; X: manya__saini;))