Financial Stocks Rise On Bernanke Comments, Jobless Data
26 March 2010 - 5:23AM
Dow Jones News
Financial stocks were the strongest performers in the Standard
& Poor's 500 Index Thursday as comments from Federal Reserve
Chairman Ben Bernanke, employment data and news from several big
banks helped push shares higher.
The head of the central bank, in written remarks prepared for
the House Financial Services Committee, said the Fed still believes
low interest rates are needed to support the U.S. economy, but the
Fed will be ready to tighten credit when needed to prevent
inflation.
Low interest rates help banks because they make more interest on
loans than they pay on borrowings.
The S&P 500's financial sector was recently up 1.9%, well
above the next-biggest gainer, the consumer discretionary sector,
which was up 1.5%. All segments of financials were rising,
including big banks, regional banks, insurers and real estate
investment trusts.
Oppenheimer & Co. analyst Terry McEvoy, who covers regional
banks, said a gradual increase in rates would be beneficial to
banks' margins, though if rates go up too quickly, it could be a
challenge. Low rates also give commercial borrowers more time to
wait for the economic picture to improve, he said.
And U.S. jobless claims data showed new claims for jobless
benefits fell last week by more than expected and continuing claims
fell to their lowest level since December 2008.
That's a positive report for bank stocks, McEvoy said, as it
gives investors greater confidence in the economic recovery, and
bank shares are extremely sensitive to the overall economy.
For regional banks especially, which often have high exposure to
commercial real estate, the jobless numbers give a boost. As more
people get back to work, McEvoy said, companies are able to fill
empty office buildings and people spend more at the mall, which
means stores are able to pay their rent.
Marshall & Ilsley Corp. (MI) rose 3.2% to $8.29, while
BB&T Corp. (BBT) rose 2.2% to $32.81 and Huntington Bancshares
Inc. (HBAN) rose 3.1% to $5.65.
McEvoy said it's a consistent trend Thursday, with both banks
considered strong and banks that have had their share of credit
woes and losses gaining.
Meanwhile, Citigroup Inc. (C) earlier Thursday joined several
big-bank peers -- including Bank of America Corp. (BAC), JPMorgan
Chase & Co., (JPM) and Wells Fargo & Co. (WFC) -- saying it
plans to participate in the second-mortgage modification program as
part of the government's Home Affordable Modification Program,
providing additional help to struggling homeowners.
That news followed on the heels of Bank of America's
announcement Wednesday that it would make principal forgiveness a
priority for certain subprime mortgages.
Citi and Bank of America were among the top gainers, rising 5.3%
to $4.37 and 4.1% to $18.29, respectively. Wells Fargo gained 3.3%
to $31.89, while JPMorgan was up 2.3% at $45.97.
Raymond James analyst Anthony Polini said that loan-modification
news is a bit psychological, but it also points to "a softer
landing for the housing market," as losses will be spread out over
a couple of years instead of a couple of quarters.
He added the banks' first-quarter reporting dates are moving
closer, with JPMorgan set to kick off bank earnings season April
14. Credit quality is likely to be a positive catalyst in banks'
results for the quarter, he said.
Insurers posted gains, led by American International Group Inc.
(AIG), which rose 6.3% to $35.27. Progressive Corp. (PGR) rose 3.3%
to $19.09 after an upgrade from Janney Capital Markets earlier in
the day.
REITS also rose, with Pennsylvania Real Estate Investment Trust
(PEI) leading gainers, up 4.8% to $12.99. Diamondrock Hospitality
Co. (DRH) rose 4.3% to $10.12, while SL Green Realty Corp. (SLG)
gained 3.9% to $56.94.
-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353;
kerry.benn@dowjones.com
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