June 9, 2009
June 9, 2009 by admin
The stock market is looking for direction in early trading on Tuesday. Investors have limited economic reports to digest today and the main news gathering attention is report that ten banks that have received money from the governments TARP program would begin to repay these obligations today. This move to repay the governments loans from late last year, as a way to boost company’s balance sheets and jump start lending, is mostly viewed as a positive sign for the health of the markets. Investors have seen a healthy return in bank and financial stock prices, since their March lows, companies such as Bank of America and Wells Fargo are trading 150% higher. The moves by the broader financial markets to restore lending are not the root cause of the rebound in stock prices, rather the elimination of a fear that the government would look to nationalize these companies is no longer present. The government remains the largest shareholder in Citigroup, as it now owns almost 38% of the company due to the emergency loans handed out earlier in the year. Banks that have the capital base to repay the TARP funds early are looking to do so primarily as they want to remove themselves from the stringent government oversight that was a part of these programs.
The repayment of the TARP money does not mean that the economy has turned the corner. There remain a number of concerns in the marketplace that could have an effect on the banking industry. The percentage of defaults on credit card and commercial loans is continuing to increase, and the job market now shows unemployment on a fast track to exceed ten percent. The banking industry received a nice boost with the historically low mortgage rates early this year, as millions of home owners refinanced their mortgages into new fixed rate loans. The refinance rush is likely to be slowing as fixed rate home loans are now closing in on the six percent level. Interest rate for mortgages have climbed almost one full percent over the last sixty days. The residual effect of rising rates could also have another impact on the banking industry, as rates move higher this will impact the market for new home buyers, one that the government is desperately trying to energize to help stabilize the housing markets. The rate of home foreclosures continues to rise despite the government’s loan modification and refinance programs announced earlier in the year. The long term impact of job losses is going to significantly impact the housing markets and ultimately the banking and lending markets. The repayment of the Tarp funds is a nice step in the right direction for the banking industry, but there are a number of concerns that still remain unsettled to believe that this marketplace is close to a full recovery.