Bank CEOs' Optimism Boosts Stocks in Slumping Market

Strategic Insights -

Positive statements from the CEOs of the three leading US banks - Citibank, JP Morgan Chase, and Bank of America - drove up the shares of their firms, as well as the overall stock market by 9% in the week ending March 13th. The CEOs' comments showed how closely tied the overall market is to the health of the banks, and how it has moved in tandem with the shrunken positions of Citibank and Bank of America in particular over the past two years.

Key Takeaways:

  • Citigroup's CEO, Vikram Pandit, defended the bank's capital strength and cash-flow performance in a statement to employees on March 9th, citing improved capital position as a result of the US government's share conversion.
  • Pandit emphasized that Citigroup's ongoing operations were profitable, with a net income of $8.3 billion in January and February 2009, but excluded credit losses and asset markdowns from his calculations.
  • JP Morgan Chase's CEO, Jamie Dimon, revealed that his bank was solidly profitable so far in the first quarter, despite registering weak earnings in the final quarter of 2008 and cutting its dividend by 87% in February.
  • Dimon criticized the "vilification of Corporate America" and the extremes of mark-to-market accounting, while endorsing the Obama administration's plans to modify mortgages and revamp the financial regulatory structure.
  • Bank of America's CEO, Kenneth Lewis, announced that his bank had been profitable in the January-February period and expected it to enjoy full-year profits of $50 billion before taxes, loan losses, and writedowns in 2009.
  • Lewis also stated that Bank of America would pass the stress test and would not need additional public capital following two rounds of government support.

Statistics:

  • Citigroup's share price moved up 38% to $1.45 on March 10th and 73% to $1.78 over the week as a whole.
  • JP Morgan Chase's share price moved up 46% to $23.25 over the course of the week.
  • Bank of America's share price moved up 85% to $5.81 over the course of the week.
  • Citigroup's net income in January and February 2009 was $8.3 billion, excluding credit losses and asset markdowns.
  • The US Treasury took common shares in Citigroup in exchange for its previously purchased preferred shares on February 27th.
  • The stress tests for the 19 largest bank holding companies will have rather light consequences, with a six-month grace period to fill a capital shortfall.

Sources:

  • [The Economist Intelligence Unit]
  • [No specific source cited for Vikram Pandit's statement to employees]
  • [CNBC, cited as a financial channel]
  • [US Chamber of Commerce, cited as a widely followed organization]
  • [Obama administration and Federal Reserve, cited as official positions]