US Banks Punished by Investors During Pandemic

JPMorgan Chase, Wells Fargo and Bank of America saw their market capitalizations fall by a combined $353 billion in the first eight months of 2020.

The three largest banks in the US by assets also registered the biggest market cap declines among the 14 largest banking groups in the world, according to data collated by trading platform BuyShares.

Wells Fargo’s share price fell from $53.75 at the start of the year to $24.15 at the end of August, a 55% fall – and a market cap decline of $128 billion.

JPMorgan Chase’s market cap fell by the most, losing almost $132 billion during the period as its share price fell from $141.09 to $100.19.

Bank of America’s shares fell from $35.64 to $25.74, a fall of nearly 30%. Its market cap fell by almost $94bn.

Outside of the US banks, Industrial & Commercial Bank of China’s market cap dropped by $73.9 billion. China Construction Bank declined by $41 billion, while the Agricultural Bank of China fell by $35.5 billion.

Spanish banking giant Banco Santander’s market cap fell by 46%, the data showed.

Most of the losses came in the first quarter as governments around the world imposed restrictions on movement in response to the coronavirus pandemic, effectively shutting down their economies.

However, while broad equity markets recovered swiftly as central banks enacted major stimulus measures, many banks failed to recover their share price losses.

The S&P 500 dropped by more than 30% between January 1 and its low point on March 23. The index then bounced back, gaining 57.7% between March 23 and August 31. Meanwhile, the S&P 500 Banks benchmark fell by 40.9% in the first three months of this year, and is still down 31.9% for the whole of 2020.

Despite the size of the market cap losses, recent research strongly suggests that the US banking sector has performed well through the COVID-19 pandemic.

Banks have raised their provisions for potential losses and provided fee waivers and other financial support for many customers.

US banks were far stronger going into the coronavirus crisis than they were before the global financial crisis, according to analyses from the Federal Reserve and rating agencies.

Even under the harshest of the Fed’s Dodd-Frank Act stress tests, no banks were expected to face solvency issues.

Rating agency KBRA reported in July  that uncertainty regarding how much banks could lose on loan books was hanging over investor sentiment.

The agency conducted its own stress test on the US banking sector using losses of the degree experienced during the global financial crisis of 2007-09.

The data showed that, while investors expected banks to be hit hard by what has been forecast to be one of the deepest global recessions in the past 100 years, the industry was more robust than these beliefs implied.