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It's been a good year thus far for bank stocks, with the KBW Bank Index (DJINDICES: ^BKX ) up by 25% since the beginning of January, but things appear to be stalling today. Following a handful of positive economic announcements as well as the potential that large lenders will have to hold more capital, shares of Bank of America (NYSE: BAC ) are currently oscillating between positive and negative territory.
The best news out this week impacting bank stocks relates to the Federal Reserve's announcement yesterday that consumer credit surged in May at a faster rate than economists had predicted. Data from the central bank showed that domestic consumers increased their debt by a seasonally adjusted $19.6 billion during the month, up from a $10.9 billion improvement in April. On an annualized basis, that equates to an 8.3% gain over the same month last year.
While at first this may not seem like a positive development, as it suggests a higher level of indebtedness, many economists view it as a gauge of consumer confidence. That is, consumers spend more and take on more debt when their confidence is higher. As an economist cited by MarketWatch.com noted, "with the recovery strengthening and the outlook brighter, people are feeling a bit more confident and are willing to spend a bit more than they were a couple of months back."
Also out today was a report from the data analytics firm CoreLogic showing that fewer home foreclosures were completed in May than in the same month last year. Its data estimated that there were 52,000 completed foreclosures during the month. This was 26.7% less than the 71,000 in May of 2012. By way of context, between 2000 and 2006, an average of 21,000 homes was lost each month to foreclosure.
According to the company's president and CEO Anand Nallathambi:
We continue to see a sharp drop in foreclosures around the country and with it a decrease in the size of the shadow inventory. Affordability, despite the rise in home prices over the past year, and consumer confidence are big contributors to these positive trends.
Finally, U.S. bank regulators voted today to raise the amount of capital that the nation's largest banks -- including JPMorgan Chase (NYSE: JPM ) , Wells Fargo (NYSE: WFC ) , and Citigroup (NYSE: C ) , among others -- have to hold to protect against losses in their asset portfolios. The Federal Reserve, FDIC, and OCC are proposing an increase in the so-called leverage ratio -- which measures the amount of equity relative to total assets -- to 5% for bank holding companies and 6% for depository subsidiaries. The latter is twice the amount currently required by international banking regulators.
What impact will all of these things have on bank earnings? While that remains to be seen, we don't have to wait long. This Friday, JPMorgan and Wells Fargo kick off bank earnings season with their results from the second quarter. Citigroup and Bank of America follow suit next week on Monday and Wednesday, respectively.
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