10 Big Banks Stocks to Watch In the 'Kitchen Sink' Quarter (Update 3)
Updated with market close information, the downgrade of Bank of America by Credit Suisse, Oppenheimer's upgrade for KeyCorp and downgrade of Comerica, and PNC's announcement on Wednesday morning of several fourth-quarter items.
NEW YORK (TheStreet) -- Fourth-quarter earnings reports will be quite messy for many of the nation's largest banks.
2012 was a remarkable year for bank stocks, with the KBW Bank Index (I:BKX) returning 30%, after falling by 25% during 2011. Bank of America (BAC) led the way among the 24 index components, with shares rising 110%, following a 58% drop in 2011.
After a bumpy right toward year-end as the fiscal cliff negotiations dragged on in Washington, bank stocks have been strong so far during 2013, as positive economic reports continue to roll in. Investors, however, can expect plenty of first-quarter volatility for the entire market, including the banks, as the arguments rage in Congress over raising the federal debt limit.
Guggenheim Securities analyst Marty Mosby said in a report on Wednesday that during the fourth quarter of 2011, "14 of our 18 Large Cap Banks reported results below market expectations. We expect year-end cleanup decisions to pull down fourth quarter results again." The analyst see some good news for the industry: "Beyond this noise, modest revenue growth, continued efficiency improvements, and deployment of excess capital are creating core earnings growth."
A Lumpy Fourth Quarter Banks Clearing Mortgage Decks
Bank of America has led the way for banks reporting extraordinary fourth-quarter items, announcing on Monday a settlement of its long-running feud with government-sponsored mortgage giant Fannie Mae (FNMA) that will include a cash payment of $3.55 billion and a $6.75 billion payment to repurchase 30,000 loans sold to Fannie before 2008. With some of the costs associated with the settlement having already been reserved for, Bank of America said that the entire Fannie Mae settlement would lower its fourth-quarter earnings by $2.7 billion.