Morgan Stanley Gains Most Among Banking Giants For Second Consecutive Year

The equity market handsomely exceeded investor expectations for the year 2014, as a significant rally across most sectors over the latter half of the year resulted in the S&P 500 and Dow Jones indices scaling record highs. The S&P 500 index gained 11% over the year, with the Utilities, Healthcare and Technology sectors notching the highest gains. In fact, all primary economic sectors besides the Energy sector recorded positive growth for the year, which saw share prices primarily influenced by a strong outlook for the U.S. economy, a sharp decline in global oil prices and weak economic cues from Europe, Russia and China.

Bank stocks outperformed the larger market for the year, as investors reacted positively to news of an increase in benchmark interest rates by the Fed in the near future – something that will finally ease the pressure on the banks’ net interest margin figures. The financial companies in the S&P 500 increased in overall value by a little over 13% – adding to the 30% gain seen over 2013. The KBW Bank index gained 7.2% over 2014 compared to a 36.9% gain in 2013 and the 30% figure for 2012.

Morgan Stanley (NYSE:MS) topped the list of banks to gain the most in 2014, with the investment bank’s shares rising 23.7% in 2014. Wells Fargo (NYSE:WFC) came in at a close second with gains of 20.8%. While none of the major U.S. banks saw a reduction in share value over the year, Citigroup (NYSE:C) recorded the lowest gain of 3.8%. European banks were not so lucky though, with almost all of them ending up with a lower share price at the end of the year. Notably, Deutsche Bank (NYSE:DB) lost almost 40% of its value over the year – the combined result of the share issuance it undertook earlier this year to boost capital ratios, its overall weak performance over recent quarters as well as its high outstanding legal burden.

See our full analysis for Bank of America | Morgan Stanley | State Street | BNY Mellon | Goldman Sachs

The table above summarizes the change in prices for major bank stocks in 2014, along with the change for each year over 2011-2013 for easy comparison.

The fact that investors have changed their outlook towards the banking sector considerably over the last three years is evident from the fact that the banks have rallied steadily since the precipitous fall in share prices in 2011. After all, 2011 was a particularly bad year for banks with a series of quick, negative developments in the later half of that year – including S&P’s decision to downgrade the U.S. long term debt rating, a string of mortgage-related lawsuits filed against the banks, and Europe’s precarious debt situation. But investor confidence in the sector has improved considerably since then, despite several stumbling blocks along the way in terms of tightening regulatory requirements, the rate-rigging scandal as well as poor internal risk-control frameworks at the largest global banks. This is due to the diligent efforts put in by the banks to clear their legal backlogs as improving economic conditions lend a helping hand to their bottom line figures. All U.S. banks have put a substantial part of their legacy issues behind them and have refocused their business model around their core strengths – something that promises sustainable growth in the future.

2015 is expected to see the Federal Reserve hiking benchmark interest rates, which have been maintained at record low levels since the economic downturn of 2008. With economic indicators suggesting that the U.S. has completely recovered from the effects of the downturn and is well on its way to stable growth, the banking sector looks set for another profitable year in 2015.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research