Bank Stocks Are Getting Battered. Here's Why It Might Be Time to Buy. -- Barrons.com
DOW JONES & COMPANY, INC. 11:14 AM ET 6/26/2020
Symbol Last Price Change
GS 192.39up -14.71 (-7.1%)
WFC 25.5678 -1.8022 (-6.58%)
BAC 23.375down -1.345 (-5.44%)
PNC 100.9down -5.55 (-5.21%)
FITB 18.9up -1.6 (-7.8%)
HBAN 8.915down -0.975 (-9.86%)
QUOTES AS OF 12:28:16 PM ET 06/26/2020
Recent weakness in bank stocks may provide a buying opportunity for some investors.
Bank stocks have been volatile in recent months and sold off aggressively on Friday following the results of the Federal Reserve's annual stress tests. The large banks are "strongly capitalized," according to the Fed's assessment, but that didn't stop the regulator from halting buybacks, capping dividends to what was paid in the second quarter, and limiting future payouts to recent earnings, which will harm income-hungry investors.
The dividend worries were enough to cause bank shares to tumble. The KBW Bank Index was off 4.1% Friday, while shares of Goldman Sachs Group(GS) and Wells Fargo(WFC) each fell more than 5% as the Fed's test implied Wells Fargo's(WFC) dividend was at risk and that Goldman Sachs'(GS) could fall below minimum capital targets.
But one analyst sees the recent downturn as a chance for investors to buy.
"Banks likely give back some recent gains, use extended weakness as [a] buying opportunity," David George, senior analyst at Baird, said in a note Thursday. Despite challenges in the sector, several banks in George's coverage space are rated Outperform, including Bank of America(BAC) , PNC Financial Services(PNC) , Fifth Third Bancorp(FITB) , and Huntington Bancshares(HBAN) .
Many of the largest banks had already suspended buybacks and weren't expected to resume them this year. But the Fed's stance on dividends injected an extra dose of uncertainty into the sector even though it didn't completely halt dividends -- despite calls to do so by current and former policy makers.
Further pressuring the sector is that the banks will have to resubmit their capital plans later this year, adding even more risk for investors.
But George doesn't expect to see a widespread threat to dividends, saying that Wells Fargo's(WFC) dividend is on "cut watch," mirroring sentiments expressed by other analysts.
"We expect dividends are largely unchanged for our coverage, with the exception of WFC where a dividend cut seems likely given recent earnings pressure as the current quarterly dividend exceeds estimated net income from Q319-Q220E," George said.
Bank investors will have little more clarity on Monday when the banks are allowed to reveal their dividend plans.
Write to Carleton English at carleton.english@dowjones.com
