Banks Stocks Remain Under Dark Cloud
NEW YORK (TheStreet) --With the bank earnings season complete, investors now await fresh catalysts for the sector. There are plenty on the horizon, though not all of them are positive for bank stocks.
In a report Wednesday, Deutsche Bank analysts identified several catalysts for the industry and for specific stocks as well.
One looming threat for the industry in the immediate term is the potential downgrade of Moody's(MCO) , which could cost Bank of America(BAC) , Citigroup(C) , Goldman Sachs(GS) , JPMorgan Chase(JPM) and Morgan Stanley(MS) as much as $20 billion.
Analysis compiled by Nomura shows that a worst case ratings-based cost would represent less than 2% of banks' available capital. Still, the downgrades would be a further reflection of the challenging environment that confronts banks, according to the analysts.
Potential legal action from mortgage bondholders over the $25 billion mortgage settlement between the industry and the states could be another catalyst, according to Deutsche. Investors in mortgage-backed securities have objected to terms of the settlement that allow banks to get partial credit for reducing the principal on loans owned by investors.