Investors Not Scared of Rating Cuts as Big Banks Lead Market Rally
June 26, 2012 08:20 ET
Investors Not Scared of Rating Cuts as Big Banks Lead Market Rally
Five Star Equities Provides Stock Research on Goldman Sachs and Wells Fargo
NEW YORK, NY--(Marketwire - Jun 26, 2012) - U.S. bank stocks posted solid gains last Friday, despite Moody's Investors Service cutting the credit ratings of 15 banks globally. "It's been like a cloud over the sector," said Brian Gendreau, market strategist at Cetera Financial. "And look at who's going up: bank stocks. There are obviously some people who thought it would be much worse." Five Star Equities examines the outlook for companies in the Banking Industry and provides equity research on Goldman Sachs Group, Inc. (
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Of the six largest U.S. banks, only Wells Fargo maintained its credit rating. The revenues of the 5 major U.S. banks that received cuts -- JPMorgan, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley -- decreased 11 percent from the year prior. The rating cuts by Moody's were the first since the financial crisis. Morgan Stanley emerged as "the clear winner" according to analysts at investment bank Keefe Bruyette & Woods. Many analysts were expecting Morgan Stanley's rating to be cut by three notches instead of the two it received.
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A day after the ratings-downgrade, 14 out of the 15 banks saw their shares rise. The KBW Bank Index (BKX) jumped 1.35 percent Friday. "Moody's is realizing that banks are risky, but there's nothing that they said about the industry that you couldn't have said 10 years ago, 15 years ago," said bank analyst Dick Bove of Rochdale Securities.
Bove stated that banks are the strongest than they have been in the last several years as borrowing costs have actually fallen for banks. The U.S. banking Industry has posted their best first quarter since 2007. Collectively U.S. banks posted a first quarter profit of $35.3 billion. As well the industry saw just 16 FDIC-insured banks fail in the first quarter, the lowest since the end of 2008, according to the FDIC's quarterly banking profile.
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