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]

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
PNC PNC Financial Services Group Inc. (The) 119.34 -0.93 -0.77 1,758,596 Trade
C Citigroup Inc. 59.39 -0.03 -0.05 13,457,404 Trade
MS Morgan Stanley 42.80 0.31 0.73 14,543,463 Trade
JPM JP Morgan Chase 88.27 -0.33 -0.37 10,207,166 Trade
FCEB Forest City Enterprises Inc. Cl B n/a n/a n/a 0 Trade
BAC Bank of America Corporation 23.35 -0.13 -0.55 67,153,219 Trade
WFC Wells Fargo & Company 55.67 -0.29 -0.52 10,328,568 Trade
SCHW Charles Schwab Corporation (The) 40.45 -0.04 -0.10 5,260,968 Trade
STI SunTrust Banks Inc. 55.03 -0.07 -0.13 3,045,502 Trade

Comments

Emerging Growth

GSV Capital Corp

GSV Capital Corp is an externally managed, non-diversified closed-end management investment company. The Company has elected to be treated as a business development company.

Private Markets

Almond Smart Home Router by Securifi

Securifi sells user friendly touch screen routers that also have support for IoT/home automation.Securifi’s Almond revolutionized wireless router setup with its easy to use Touchscreen Interface in 2012. Now our…

Knightscope

Autonomous security robots providing advanced detection capabilities at $7 per hour - aiming to define the future of security. Help #StopTheViolence.