Name: Banks Shake Off Big Week of Bad News
Uploaded: 2016-04-18
Duration: 3 min 29 s
Description: Investors might want to think twice before selling bank stocks.

[ MUSIC ] This past week was a really big one for the big banks and there were a lot of headlines and pretty much all of them were really bad. You had Goldman Sachs settlement for 5 billion dollars and they admitted that they had misled investors about mortgage backed securities. The feds told the banks that their living wills weren't up to snuff so they had to go back to the drawing board on that. You had the democrats bashing the banks all over the place at the debate on Thursday night, and you had Elizabeth Warren on the sidelines chiming in as well. And you also have just pretty lackluster earnings over all. The banks are taking big hits from what's going on in the energy sector, they've got a lot of bad loans to energy companies, and you also have still problems with European banks, the Italians came up with yet another bailout fund for their banks but nobody believes that that's going to work. The worst thing that's happening for the banks right now has to be the political discussion that's going on, especially in Democratic side. Bernie Sanders' entire campaign in part is base on the idea that the big banks are too big, they should be broken up and that the whole industry is fragile, that has made Hillary Clinton hold to the left a little bit in her view of the big banks. Now she says we have Dodd Frank and we have to be tough on the banks within the law. But there's nobody out there, certainly not on the Democratic side, who are saying, hey the big banks they do a lot for the economy and we need them if we want to have a vibrant economy for the United States of America. So I'm not a big fan of the big banks, but here's the case that economists would make about why we need the big banks, or at least a banking system. The US economy is built in part on the idea of access to credit. The real reason, the big reason, that the Federal Reserve has kept interest rates for so low for so long is that basically so they could increase the liquidity that the banks have, with the idea that banks will then turn around and lend it to the rest of us, and that we'll go out and spend that money. That's the mechanism for fed policy. It's pretty much broken down. The banks have gotten the money. They just haven't lent it out, at least not very aggressively. So we've had a fracking boom in this country in the last ten years and the banks have been a big part of it, lending money to companies so they could go out and drill for oil and natural gas. According to Fitch, the banks are sitting on about $ 140 billion of unfunded loan That means that those are loans that have a good chance of going bad. That could be a problem for the big banks. [ UNKNOWN ] JP Morgan and Wells Fargo increased their loan reserves by $ 500 million this quarter. And they both cited exposure to energy as a reason why. This is the big concern for investors in the bank That their exposure to oil is gonna come back to haunt them, that unless oil prices start to rise dramatically, a lot of those loans are gonna go bad and then the banks are gonna lose a ton of money on them. The flip side of that is that most of the exposure from the big banks is to the big oil companies, the Exxon Mobiles of the world who are gonna be able to pay back their debt. So the banks might take a hit on this but I don't think any big bank is gonna go out of business because of what's going on in the energy sector. Bernie Sanders is doing a great job of bashing the big banks and he's running a lot with that but right now what the market is telling you is that the banks, or at least Wall Street thinks Hillary Clinton is gonna be the nominee. Nominee of the Democratic Party, and they're really not so much worried about what she would do if she becomes President. So the banks might be feeling the Bern in the campaign trail, but really, they're shaking it off. [ MUSIC ] There's an old saying on Wall Street. It's not the news that matters, it's how the market reacts to the news that matters. And the news this past week for the banks was all bad, and yet bank stocks actually had a pretty good lead. They were up, and they did better than the S & P 500 What that's telling you is that a lot of this bad news has been priced in to the bank stocks. And if you're an investor you might want to think about buying some bank stocks here rather than selling them, even if you have to hold your nose to do it. [ MUSIC ] [ BLANK_AUDIO ]

Investors might want to think twice before selling bank stocks.