Big banks stocks rally on Thursday -WHY
On Thursday the shares of large "too big to fail" bank stocks had a strong performance, all up more than 5%. Even the Eeyore of this languid group, BofA, was up, and 8% at that. On Friday they gave back some but kept the majority of their Thursday gains. Why?
The instant analysis crowd on CNBC and at Bloomberg had plenty of meaningless answers. My favorite was that it reflected the "Beta trade" of 2012. That's trader talk for a stock that has the ability to change for the positive given that it is so beaten down there is really only one way to move. But why Thursday. My intuitive answer is that it was due to Obama's appointment of Richard Cordray as director of the Consumer Protection Bureau.
That may seem counter-intuitive given that most banking institutions have concerns about the establishment of this new bureaucracy and, under Dodd Frank guidelines, its independence and lack of accountability, as in sort of the Fed of consumer protection.
Until now, the scope of the Consumer Protection Bureau has been limited to banks only, so it has had plenty of time to begin the process of vetting and criticizing the consumer banking practices and loan books of the big banks. With finally the appointment of a Director, the bureau is now empowered to look at non-bank financial institutions that do business with the consumer. That group includes pay-day lenders, check cashing shops, money transfer agencies, independent mortgage brokers, credit bureaus, private mortgage lenders, and maybe even pawn shops. This is a group that, in general, makes the big banks look like saints and will give the Consumer Protection Bureau plenty of new work in an area ripe for regulation.
Maybe that will lead to some breathing room for the big banks. Contrary to popular opinion as reflected by much of the media, the big banks really care immensely about their reputations. That's the first hurdle for success in financial services. They want to use their statistical models to risk price their offerings because otherwise they would just lose money. Even that basic premise of lending is frowned upon by some in political and regulatory circles as biased. Banks are still a business and not a public utility. The majority of the questionable practices found at the big banks relate to businesses acquired in 2008 through bad decisions or under duress - Countrywide thru BofA, Golden West through Wachovia to Wells Fargo, WAMU thru JPMorganChase, with Citi being the one that needed no acquisition to create its own problems.
So on Thursday, maybe there was some promising move in the interbank markets in Europe that led to the move or two or three big hedge funds that decided, coincidentally, to move into these stocks on the same day. Who knows. My intuition may be just as good as these answers.
The instant analysis crowd on CNBC and at Bloomberg had plenty of meaningless answers. My favorite was that it reflected the "Beta trade" of 2012. That's trader talk for a stock that has the ability to change for the positive given that it is so beaten down there is really only one way to move. But why Thursday. My intuitive answer is that it was due to Obama's appointment of Richard Cordray as director of the Consumer Protection Bureau.
That may seem counter-intuitive given that most banking institutions have concerns about the establishment of this new bureaucracy and, under Dodd Frank guidelines, its independence and lack of accountability, as in sort of the Fed of consumer protection.
Until now, the scope of the Consumer Protection Bureau has been limited to banks only, so it has had plenty of time to begin the process of vetting and criticizing the consumer banking practices and loan books of the big banks. With finally the appointment of a Director, the bureau is now empowered to look at non-bank financial institutions that do business with the consumer. That group includes pay-day lenders, check cashing shops, money transfer agencies, independent mortgage brokers, credit bureaus, private mortgage lenders, and maybe even pawn shops. This is a group that, in general, makes the big banks look like saints and will give the Consumer Protection Bureau plenty of new work in an area ripe for regulation.
Maybe that will lead to some breathing room for the big banks. Contrary to popular opinion as reflected by much of the media, the big banks really care immensely about their reputations. That's the first hurdle for success in financial services. They want to use their statistical models to risk price their offerings because otherwise they would just lose money. Even that basic premise of lending is frowned upon by some in political and regulatory circles as biased. Banks are still a business and not a public utility. The majority of the questionable practices found at the big banks relate to businesses acquired in 2008 through bad decisions or under duress - Countrywide thru BofA, Golden West through Wachovia to Wells Fargo, WAMU thru JPMorganChase, with Citi being the one that needed no acquisition to create its own problems.
So on Thursday, maybe there was some promising move in the interbank markets in Europe that led to the move or two or three big hedge funds that decided, coincidentally, to move into these stocks on the same day. Who knows. My intuition may be just as good as these answers.
posted by John Borden at 11:37 AM
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