Slumping Share Prices of US Bank Hinting a Potential Crisis

The US S&P 500 index is nearly reaching 4,600, compared to its all time high at 4,800 in late 2021 to early 2022 or 4.4% more to reach that level. While US tech stocks, especially the magnificent seven are leading the markets, many of US bank stocks except JPM, are trading below their peaks by at least 33% or more. For example, Citigroup (NYSE: C) is trading at $45, a 40% less than its peak at almost $80 in June 2021 and lower than $65 in January 2022.


As for small bank stocks, the regional bank stocks fell and did not recover ever since the crisis in March. Many US regional banks’ were holding large amounts of US treasuries or bonds as their assets, amid the recent rise of an interest rate that pressured bond prices, forcing them to sell at lower than expected price when the liquidity issue occurred as the Silicon Valley Bank crisis showed. Among regional bank stocks, Truist Financial Corporation (NYSE: TFC) is trading at around $32, less than a half of its peak prices at almost $69 in January 2022 and never reaching $47 in March 2023 again in this year.


Although the currently high interest rate that banks should profit from the spread between lending and deposit, the aftermath of the March crisis prompted regulators to tighten the lending standard, dropping the US regional banks’ potential borrowers evenmore. On top of that the new Basel III capital rules make regional bank stocks “uninvestable”, according to Jamie Dimon from JP Morgan.


Despite that, the recovery of the US economy should allow banks’ borrowers to pay off their loans. However, according to Moodys, major US banks are sitting on $650 billion in unrealized losses. Meanwhile the US small banks currently hold around 70% of all Commercial Real Estate (CRE) loans, with a total of $1.5 trillion needing to be refinanced by 2025. The CRE loans are usually sought by a small business that wished to expand or renovate their stores, which is usually more expensive than a residential loan.