Can financial stocks be saved?
Because of low lending rates, banks have struggled to cut back on expenses and add new ways to bring in revenue, all the while investors are keeping a close eye on the Fed for clues as to when rates will go back up. However, the rate hike that did occur in December was not enough to save financial stocks from falling.
“Even in the current environment, which is not bad, they’re not really creating value for shareholders,” Nick Colas of Convergex said Thursday on CNBC’s “Power Lunch.”
Investors expect a 8% minimum return on capital, however financial companies are only seeing 6-7% on average. This shortfall has led some investors to give up hope for the financial market, according to Colas.
“That really limits the amount of interest that investors and shareholders have,” Colas said. “On our desk, we’re not seeing much interest in financials in the last couple of weeks, partly because they’ve just underperformed so badly, and who wants to own them going into the [new] quarter?”
Banks cannot compete with new financial technology companies and solutions that have increased competition over the last few years.
“Banks are just too inefficient at this point,” Boris Schlossberg of BK Asset Management said. “The whole industry may be going through a very wrenching period of adjustment.”
