Citigroup Leads Bank Stocks Lower as Jobs Report Disappoints

  • KBW Bank Index slides as much as 3.9%, most since February
  • May employers report raises concern about U.S. growth

Deep Dive Into the Disappointing U.S. Jobs Report

Citigroup Inc. led declines among the largest U.S. banks after a lackluster May employment report prompted concern that the Federal Reserve may delay raising interest rates.

Citigroup fell as much as 4.7 percent, the most since February, and Bank of America Corp. slid 4.5 percent. The 24-company KBW Bank Index declined as much as 3.9 percent.

“Probably the overall biggest disappointment is that we’ve got caught in this lower-for-longer environment and we’re seeing a little more signs that that could persist based on today’s jobs report," said Bruce Van Saun, chief executive of Citizens Financial Group. The Providence, Rhode Island-based bank slumped 4.9 percent to $22.66, the third worst performer in the KBW Index.

Employers in May added 38,000 workers, the fewest since September 2010, a Labor Department report showed Friday. The median forecast in a Bloomberg survey called for a 160,000 gain. The report may signal that the economy is on weak footing, which could constrain household spending and economic growth.

Higher interest rates allow banks to earn larger spreads on the deposits they’ve collected. While the Fed’s efforts to reduce rates stabilized asset prices and helped lenders access cheap debt in the wake of the credit crisis, prolonged low rates have crimped banks’ margins.

Fed officials may take into account the hiring data as they consider whether to raise interest rates again during their June 14-15 meeting. Traders now price in a 4 percent probability for an increase by the central bank’s meeting this month, down from a 22 percent chance before the report’s release.

An increase in rates is evidence that “the economy is getting stronger  -– that’s a good thing,” Jamie Dimon, CEO of JPMorgan Chase & Co. , said Thursday. “And obviously for banks, it has a slight double benefit depending on how you’re positioned.”

Citigroup’s decline also comes after CEO Michael Corbat said Thursday second-quarter net income probably will be unchanged from the first quarter. If second-quarter net income under generally accepted accounting principles remains flat with the prior three months at $3.5 billion, that will be a drop of about 28 percent from the same period in 2015.

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