What Can You Do with Your Bank Stocks?
One of the strongest market sectors in the stock market over the past year has been the financial market sector. Bank stocks have been on a tear, moving up massively since the lows in June.
Looking at the entire market sector through the Financial Select Sector SPDR (NYSEArca/XLF) exchange-traded fund (ETF), the index is now up almost 36% from the lows in June. Bank stocks have benefited from several factors. Low Treasury yields make the dividend yields from bank stocks highly attractive; the entire market sector has also reduced its risk profile, while eliminating costs. The end result has been a group of companies that offer significant upside.
However, the hunt for safety by average citizens might hurt bank stocks going forward. The latest data by Credit Suisse Group AG shows that for the top-eight banks, the average loan-to-deposit ratio fell in the fourth quarter 2012 to 84%, compared to 87% during the same time period in 2011. In 2007, the loan-to-deposit ratio was 101%. (Source: Dexheimer, E., “JPMorgan Leads U.S. Banks Lending Least of Deposits in 5 Years,” Bloomberg, February 20, 2013.)