Bank Stocks Need More Than Solid Earnings to Draw Wary Investors

When US banks kick off the third-quarter earnings season Friday, it will mark the first in a long line of hurdles the group needs to clear in order to assuage investor fears.

Bank stocks are hovering near the lowest level of the year, a mark hit in May following First Republic Bank’s collapse. The KBW Bank Index has tumbled 24% this year, a sharp underperformance to the S&P 500 Index’s 14% gain. Five of the largest US banks, excluding JPMorgan Chase & Co., have combined to lose about $100 billion in market capitalization this year.

“Investors in the bank space just have about a half-dozen issues that are out there that need to get resolved to their better satisfaction,” Piper Sandler analyst R. Scott Siefers said.

Among the challenges are new regulatory proposals that would impose higher capital requirements on banks, unrealized losses in their securities’ portfolios and rising bad loan write-offs. The demise of three banks in the S&P 500 earlier this year is also still fresh in investors’ minds.

banks cant recover

The sector fell as much as 1.5% on Thursday, underperforming the broader market as yields climbed. US stock futures were pointing to a muted open for the benchmark S&P 500 Index ahead of bank earnings on Friday.

“Investors are sort of looking at things and saying, the spring was an actual crisis with three large bank failures. The summer was downward estimates revisions due to interest rates and funding pressures, and now you’re telling me we’re on the cusp of a potential credit cycle,” Siefers said. “The industry is in sort of a show-me phase right now.”