Banking stocks have been hard hit in 2011. Concerns regarding a potential double dip and the continued weakness in the housing market have led to sharp declines across the board. Even optimistic news, like this morning’s announcement that J.P. Morgan Chase & Co.’s second-quarter profit grew failed to bolster enthusiasm among investors. The 13 percent climb led shares only mildly higher as looming anxiety over Greek debt contagion and squabbling over the debt ceiling spooked investors. Additionally, a threat from Moody’s claiming they are nearing a U.S. credit downgrade sounded alarm across the sector. Until a decision is made concerning the debt ceiling its likely bank stocks will continue to suffer. The weakened credit rating would devastate values throughout financials making an investment now during these uncertain times highly risky with little potential upside in the near future.
That is not to say there are no bank bulls right now. The argument can still be made that banks at their current levels are undervalued. J.P. Morgan’s results today would support that theory. Its 7 percent overall increase in revenue to $27.41 billion exceeded Wall Street expectations. Profit for the period equaled $5.43 billion for the period. J.P. Morgan’s (JPM) performance would normally strengthen support for peers but financial were mostly down for the day. Perhaps its because loans remained somewhat weak and the bank’s investment profit soared 49 percent and was responsible for much of the growth. Neither the success of the Investment Banking sector nor the Fed’s easy money policy, which would facilitate bank profit making, are helping.
The notion that profits could stabilize balance sheets for banks is not an easy sell in the current market. Financial institutions like Bank of America (BAC) are still suffering, down 23 percent for the year and continuing to tumble. Foreclosures, short sales and mortgage servicing are all still weighing down the North Carolina based bank following its acquisition of Countrywide Mortgage and many speculate that offering more shares and weakening current shareholder value will be the only solution to their current plight.
Regional banks have not been doing much better. Early estimated for Zions Bacorporation (ZION) is a loss of one cent per share. The losses mark an improvement from last year’s quarter net loss of 84 cents but are unlikely to help share prices. Shares of the bank continued to slide today though the estimated park an improvement over the past few months when the average loss was estimated at 10 cents. For the year, analyst prediction are kinder, projecting f 49 cents per share in profit from its net loss of $2.64 last year. Revenue at the bank has fallen for the past 4 quarters.
Rensant Corp (RNST), which plans to release their results for the quarter on July 19 after market close also fell in trading today. Renasant, the parent of Renasant Bank and Renasant Insurance has had a relatively good reputation through the recession. The company, which has assets around $3.6 billion across its 60 banking, mortgage, financial services and insurance offices in Mississippi, Tennessee and Alabama though is not being viewed favorably regardless as a result of current associations and looming risks.
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