Bank Stocks Bounce Back After Spain, Macro Pressure

April 11th, 2012 by Trefis Team
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Bank stocks have bounced back on Wednesday after Alcoa (NYSE:AA) – the first company to report earnings – came out with an unexpected profit for Q1 2012 on Tuesday. Bank shares had taken a beating on Monday and Tuesday as fears related to Spain and other macroeconomic factors gripped investors.

Battered by a series of worse-than-expected reports about the economy, investors have been jittery since the beginning of the month – evident from an overall decline in the stock market over the period. And with earnings season kicking off this week, the loss in confidence showed in substantial share price declines across sectors. Barclays (NYSE:BCS), which has significant exposure to Spain, saw its shares decline by more than 5% on Tuesday – the most among banks. Shares of Bank of America (NYSE:BAC) and UBS (NYSE:UBS) also slid by more than 4%. The KBW Bank Index slipped by more than 2% on the day, with the index recording a near-7% decline since April 2.

See our full analysis for Barclays | Bank of America | UBS

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Fears of Spain’s economy buckling under the weight of its debt were renewed on Tuesday when the yield on the country’s 10-year bonds crossed 6%. [1] This is dangerously close to the 7% yield figure, which is generally seen as the level at which raising cash by issuing more bonds becomes prohibitively expensive.

Also, the U.S. National Federation of Independent Business’ Small Business Optimism Index fell for the first time in March after rising for six months. This spread more gloom among investors, as it pointed toward a possible worsening of the job situation in the U.S. in the coming months. The poor unemployment figures released last week already evoked negative responses from investors.

The compounded effect of various economic indicators taking a turn for the worse in the last week raised fresh fears of an impending recession. It also cast doubts about overall profitability over the quarter – something which further drove down share prices prior to the earnings season.

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Notes:
  1. Spanish Government Generic Bonds, Bloomberg [↩]