Banks Sink – Throwing More Cold Water on All That Talk that Megabanks Are a Great Investment 

The chart above shows how these banks performed yesterday compared to the major stock averages. Citigroup, Goldman Sachs and Bank of America were all down more than 3 percent while Morgan Stanley was down almost 5 percent – in one trading session. (Morgan Stanley may have exceeded the declines in other bank stocks because in addition to having a powder keg full of derivatives, it has been named in the press as a central figure in a Justice Department probe involving potential leaks of information to hedge funds.)

For how the megabanks and insurers performed during the market selloff in March of 2020, see our report: There Was a Bloodbath in Wall Street Banks and Insurers Yesterday.

It’s also a complete fallacy that rising interest rates are good for the megabanks. What rising interest rates do is to accelerate all of the myriad forms of credit risks that reside in these banks: inadequate loan loss reserves; opaque derivative contracts with dubious counterparties; highly-leveraged loans with borrowers that suffer credit downgrades during a rising-interest rate environment, and so on.

wallstreetonparade Banks Sink – Throwing More Cold Water on All That Talk that Megabanks Are a Great Investment