What a way to start the year.
For shares of Bank of America and its peers, 2016 has been tough so far, as concerns over low oil prices and the pace of global economic growth have pummeled U.S. bank stocks and financial markets overall.
The price of the Charlotte-based bank’s shares has sunk about 20 percent this year. It’s the hardest hit among the nation’s three largest commercial banks by assets – a group that includes JPMorgan Chase, which is down about 14 percent, and Wells Fargo, down about 10 percent.
Shares of Citigroup, the fourth-largest bank, are down about 21 percent for the year.
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Bank stocks have taken a beating as a global oil glut has driven down the commodity’s price, which plunged this week to 12-year lows. Sagging oil prices have pushed banks to set aside millions of dollars for potential losses on energy sector loans.
The slump in stock prices for U.S. banks also reflects shareholders’ fears about further slowdowns in global economic growth, said Marty Mosby, an analyst for Tennessee-based Vining Sparks. China and other emerging markets have sputtered, rattling investors.
“The worry is that it goes into a full-blown (global) recession,” which could lead to losses at banks, Mosby said.
Bank shares are performing worse than the broader stock market this year. The S&P 500 is down about 7 percent, compared with a roughly 15 percent slide in the KBW Bank Index, which tracks share performance of 24 large U.S. lenders.
For Bank of America, the slide comes at a time when its share price remains far below pre-recession levels, after the bank paid out billions of dollars to settle financial crisis-era legal issues. At its peak, the shares traded for about $56 in 2006. Citigroup’s shares also remain well their pre-recession prices, while JPMorgan’s and Wells Fargo’s stock prices are above pre-recession levels.
Bank of America declined to comment on its share price, which closed at $13.56 Friday. One area in which the bank notes improvement is tangible book value per common share, a measurement that excludes certain items such as intangible assets. That figure increased to $15.62 at the end of last year, a record level and up 8 percent from a year earlier.
Although Bank of America last year posted its highest annual profit since a record $21 billion in earnings in 2006, the bank’s stock price reflects investor uncertainty over when the Federal Reserve will raise interest rates again, Mosby said. Last month, the Fed increased short-term rates for the first time since slashing them to near zero in 2008.
Bank of America’s assets stand to benefit more than some of its peers from rising rates, Mosby said. But sluggishness in the global economy could further slow additional Fed rate hikes, he said.
“The question is, is the rate increase one-and-done?”