Investors lose confidence in banks

Traders work on the floor of the New York Stock Exchange.

TEXT OF STORY

TESS VIGELAND: Bank stocks got hammered for a second straight day today. Most are at 12-month lows. Some are sinking even deeper. It's all about the subprime mess. But while investors are spooked, some analysts say the sector is doing just fine. Marketplace's Jill Barshay reports.


JILL BARSHAY: Investors rushed to buy bank stocks back in September, when big banks wrote off their bad mortgage bonds. Al Goldman of A.G. Edwards says those investors are rushing to sell now. They're unhappy that banks didn't air all their dirty laundry at once.

Al Goldman: They thought they had swept the problems out, that management had faced up to it. But then management comes out and says, whoops, we've got some more write-offs coming. And some of the figures are large.

Wall Street buzzed with rumors yesterday that banks could declare another $10 billion in losses.

Goldman: Investors are very confused about just what future write-offs they're going to have to digest. And that's what causing the rather indiscriminate dumping of some good bank stocks.

Indeed, just as investors started selling, Standard & Poor's released a report saying banks are in good shape. Tanya Azarchs is a managing director at S&P.

Tanya Azarchs: The banks are faced with having to write down bad loans. They have provisions for this and they have capital for this. They'll struggle through it.

Azarchs says banks are stronger today than they were 10 years ago because they're in more businesses.

Azarchs: So if mortgage banking is not so profitable or syndicated lending is not so profitable, as it isn't now, they have credit-card lending, or they have international banking.

Azarchs says stock investors are focusing on short term losses. She's thinking long term, as in five years down the road. But she admits the next 12 months could be bumpy for banks.

In New York, I'm Jill Barshay for Marketplace.

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