Treasury Does Damage Control On Mnuchin’s Damage-Control Flop
Treasury Secretary Steven Mnuchin called the nation’s six biggest banks Sunday to make sure they were OK, as he huddles today with several agencies to “assure normal market operations.” But investors took it as yet another sign things were neither OK nor normal, sending bank stocks lower.
His attempt to reassure markets followed the Dow Jones industrial average’s worst week in 10 years and reports Saturday that President Trump had discussed firing Fed Chairman Jerome Powell.
In a statement on Sunday, the Treasury Department said Mnuchin held a series of calls with those banks’ CEOs, who “confirmed that they have ample liquidity available for lending to consumer, business markets, and all other market operations.”
Mnuchin also “confirmed that they have not experienced any clearance or margin issues and that the markets continue to function properly.”
But his attempt at reassuring markets actually raised a new concern for bank stocks.
“It seemed to circle issues of liquidity where there don’t seem to be any,” Keefe, Bruyette & Woods analyst Brian Gardner said in an interview. “So, I think it raised the question, in the minds of many investors: ‘What does Treasury know that we don’t?'”
Cowen & Co. echoed that sentiment in a note to clients.
“This is the type of announcement that raises the question of whether Treasury sees problems that the rest of the market is missing,” analyst Jaret Seiberg wrote. “Not only did he consult with the biggest banks, but he is talking to all of the financial regulators on Christmas Eve. We do not see this type of announcement as constructive and worry that it can trigger the vary panic that Treasury wants to avoid.”
Mnuchin will hold a call with the President’s Working Group on financial markets to “discuss coordination efforts to assure normal market operations,” the statement added. The group includes the board of governors of the Federal Reserve System, the SEC and the CFTC. Mnuchin also invited the office of the Comptroller of the Currency and the FDIC to participate.
Seeking to perform some damage control on Mnuchin’s damage-control attempt, a senior Treasury official told CNBC that the Treasury Department had no concerns about liquidity. Representatives from the Treasury Department were unavailable for comment on Monday.
Banks stocks came off intraday lows. JPMorgan Chase (JPM) fell 2.2% on the stock market today. Citigroup (C) dipped 2%, Wells Fargo (WFC) gave up 3.4%, and Bank of America (BAC) lost 2.7%, cutting through the floor of a consolidation pattern.
Among other bank stocks, Goldman Sachs (GS) slid 2.1%. Morgan Stanley (MS) was down 1.8%.
Trump Trash Talks Fed More: ‘Can’t Putt!’
The Dow and the S&P 500 continued to retreat on Monday, with the S&P 500 joining the Nasdaq in bear-market territory. An array of concerns have pressed markets lower — the prospect of a recession, higher borrowing costs due to Fed rate hikes, swelling corporate debt, trade friction and disarray in Washington.
The government shut down this weekend due to an impasse over President Trump’s demand for funding of a wall on the border with Mexico.
Trump heaped more criticism on the central bank Monday, following the weekend report that he mulled firing Powell. Trump has criticized the Fed for raising interest rates to discourage borrowing and keep the economy from overheating.
Mnuchin said on Twitter on Saturday that Trump told him “I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so.”
But on Monday, Trump continued to blame the Federal Reserve for market anxieties.
“The only problem our economy has is the Fed,” he said on Twitter. “They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch — he can’t putt!”
‘Lacks Positive Earnings Catalysts’ For Bank Stocks
For bank stocks, the check-in from Mnuchin compounded worries in the sector.
Goldman Sachs has become entangled in a scandal surrounding the alleged plundering of a Malaysian state investment fund. The Fed is still keeping a cap on Wells Fargo’s growth as the bank struggles to get its house in order after a sham consumer-account scandal led to scrutiny of the bank’s other operations.
Bank stocks are also closing out a year during which loan growth generally disappointed Wall Street. A flatter yield curve — which measures the difference between short- and long-term government debt and is used as a barometer for longer-term economic sentiment — also pulled bank stocks lower.
“We believe that the Universal Bank group lacks positive earnings catalysts that could push the stocks meaningfully higher and just having a discounted valuation is not enough for us to stay constructive on the group,” Keefe, Bruyette & Woods analyst Brian Kleinhanzl said in a podcast broadcast by the firm this month.
“As we see it,” he continued, “higher interest rates and ongoing trade wars both contribute to our forecast for slowing economic growth and slowing growth creates an environment where it is difficult for Universal Bank stocks to outperform.”
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