US bank stocks falter over recession worries

S&P 500 banks index slumps around 11% this month

NEW YORK:

Shares of US banks are taking a beating in December, as worries over an expected recession and weakening profit margins dull the industry’s appeal.

The S&P 500 banks index has slumped some 11% this month against a 5.5% drop for the broader index in the same period.

Among the hardest hit were shares of Bank of America, which have fallen 16% this month. Shares of Wells Fargo & Co have slumped about 14% and those of JPMorgan Chase & Co are down over 6%.

Signs of pessimism over the economy have crept into asset prices in recent weeks, as investors grow increasingly worried that the Federal Reserve’s most aggressive monetary policy tightening in 40 years – aimed at reducing inflation – will also hamstring growth.

Treasury yields, which move inversely to prices, have recently tumbled to three-month lows, signaling that growth worries may be pushing investors into bonds.

Others have pointed to energy shares, which have fallen about 12% from recent highs, as a sign that investors may be factoring in an economic slowdown.

Banks face a potential double whammy: while a recession could hurt loan growth and increase credit losses, higher rates threaten to shrink profit margins if the interest that lenders pay out on deposits eats away at interest earned from loans.

Job cuts have further hinted at the stresses banks expect to face: Goldman Sachs is planning to cut thousands of employees to navigate a difficult economic environment, a source familiar with the matter told Reuters on Friday, the latest global bank to reduce its workforce in recent months.

Published in The Express Tribune, December 18^th, 2022.

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