Will Cyprus Bailout Continue to Punish U.S. Bank Stocks?

Michael Teague |

Will Cyprus Bailout Continue to Punish U.S. Bank Stocks?Tuesday’s trading begins in the shadow of the Cyprus bank bailout. Wall Street bank stocks almost unanimously took a hit on Monday upon news of the Cypriot parliament’s now postponed vote on a tax on private deposits, approval of which is necessary if that country’s financial institutions are to receive a much needed bailout from the European Central Bank.

On the S&P 500, Bank of America (BAC) got off relatively easy with a loss of only 0.08 percent, with shares trading at $12.56 by closing.

J.P. Morgan Chase (JPM) was down 1.02 percent to $49.51, but the reasons for this have probably as much to do with the events of last Thursday, when the bank first had part of its stress-test plan sent back by the Fed for reconfiguration, and last Friday when Senator Carl Levin excoriated the bank’s top executives in a lengthy hearing before the Permanent Subcommittee on Investigations for their roles in last year’s “London Whale” trading scandal.

Morgan Stanley (MS) was the biggest loser, down 2.54 percent to $22.99 per share. Citigroup (C) was second place, down 2.16 percent to $46.24, followed by Wells Fargo (WFC), who was down 1.15 percent to $37.76 per share. The Charles Schwab Corp. (SCHW) was down 1.12 percent to $17.66, SunTrust Banks (STI) 0.86 percent to $28.21, while PNC Financial Services (PNC) lost 0.82 percent to $66.25.

These losses are significant, because they could reflect one or any combination of a number of fears:

-That European Central Bank President Mario Draghi’s stated desire to save the euro at any cost will translate into Cypriot depositors rushing to withdraw from their accounts.

-That such a run on the banks could have a contagious effect especially on Cyprus’s counterparts in other troubled eurozone countries who have received bailouts and may again in the future.

-That such a run on the banks will lead to increasing instability in the European Union at a time when everyone was just starting to get comfortable with a modicum of certainty about the future there.

-That this move will set a precedent for how bailouts will be dealt with by future governments, whether in Europe or not.  Namely, that the safety of the common bank deposit is not guaranteed against the negligent behavior of those very banks.

Of course, this could all blow over in a short period and to a large extent if the Cypriot parliament manages to make the tax less onerous on the average citizen, and opts to focus instead on the island’s largest depositors.

[Image via Flickr]

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Companies

Symbol Name Price Change % Volume
PNC PNC Financial Services Group Inc. (The) 115.02 0.20 0.17 2,565,802
C Citigroup Inc. 60.04 -0.11 -0.18 22,804,941
MS Morgan Stanley 43.73 0.15 0.34 12,115,063
JPM JP Morgan Chase 85.49 0.37 0.43 14,567,202
FCEB Forest City Enterprises Inc. Cl B n/a n/a n/a 0
BAC Bank of America Corporation 23.09 0.14 0.61 130,590,406
WFC Wells Fargo & Company 57.14 -0.15 -0.26 20,331,186
SCHW Charles Schwab Corporation (The) 39.32 -0.10 -0.25 8,682,476
STI SunTrust Banks Inc. 54.84 0.05 0.09 4,207,317

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