The conventional wisdom was that the Fed’s rate hike on December 16 of last year was going to help big bank stocks by boosting their ability to charge heftier interest rates on loans. That theory has pretty much been relegated to the dust bin of financial fairy tales along with the Fed’s prediction that the slump in oil prices would be “transitory.” Bank stocks have been cratering like it’s early 2008 all over again and oil prices can’t find a floor, having broken through $60, $50, $40 and now $30 a barrel over the past 12 months.
On top of the oil rout, which may spell corporate credit downgrades, bankruptcies, higher loan loss reserves – none of which are good for bank stocks – there are other bank risks not on the public’s radar screen.
Among big U.S. bank stocks, Citigroup has taken the worst drubbing. Even after reporting what were perceived to be fairly good earnings last Friday, its share price fell by 6.41 percent by the close of trading. That brings its stock losses to 30 percent from its July 2015 high. That’s not the sort of behavior one wants to see from one of the country’s largest banks and a stock that lost 60 percent of its market value in one week in 2008 (the week of November 17) and proceeded to receive the largest taxpayer bailout in U.S. history.