Shares of the country's biggest banks led the rally seen across
sectors on Monday as investor hopes of a deal between the
Republicans and Democrats before the fiscal cliff kicks in were
kindled by House Speaker John Boehner's proposal to increase tax
rates. This was the first time tax hikes featured in the U.S.
budget debate and is seen as a positive first step towards finding
a middle ground between the two parties before existing laws for
automatic tax increases and government spending cuts come into play
starting January.
Investors also seem to have paid special heed to the advice of
Dick Bove and Meredith Whitney - both of whom predicted a
strong outlook for the financial sector in the near future. That
would explain the fact that shares of Citigroup (
C
) and Bank of America (
BAC
) gained about 4% each over trading, followed by an increase of
about 3.5% in the share prices of
Wells Fargo
(
WFC
) and Goldman Sachs (
GS
). The KBW Bank Index jumped up 2.8% over the day.
See our full analysis for Bank of America | Citigroup |
Wells Fargo
| Goldman Sachs
Both parties have been haggling over the budget debate for quite
some time now, but the contentious issue of taxes was raised for
the first time by Republicans only this Monday by Speaker Boehner.
As the impending fiscal cliff essentially stems from the expiration
of various tax cuts currently in place combined with stricter
government spending restrictions, it is imperative for both parties
to come to an agreement on how to handle the problem of taxes to
keep the possibility of a recession at bay.
This is why Boehner's proposal to tax high-income individuals
sparked so much interest from investors who finally see the talks
moving towards a solution.
Investors also welcomed well-known analyst Richard Bove's view
that banks will likely report record earnings this quarter and will
have a 'solid' 2013. The view was only strengthened by reports
that Meredith Whitney - known for her early forecast of the
economic downturn of 2008 - believes that the Fed will likely find
the big banks strongly capitalized as part of its stress tests next
March.
This should help the banks raise their dividend payouts in the
near future - something already hinted at by the top brass at
Morgan Stanley (
MS
) and State Street (BK). (see
Morgan Stanley Shareholders Likely To Earn Rich Dividends Soon
and State Street Is Angling For Fed Approval On Higher Shareholder
Payouts)
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