Bank%20Margin%20Opens%20Investors%20to%20Error%20Article

Bank%20Margin%20Opens%20Investors%20to%20Error%20Article -...

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Unformatted text preview: Wall Street Journal HEARD ON THE STREET JUNE 3, 2011 Bank Margin Opens Investors to Error by DAVID REILLY Bank stocks just can't regain their mojo. After rebounding sharply in 2009 and outpacing the broader market for much of last year, a nearly 15% performance gap has opened between the Standard & Poor's 500 stock index and the KBW Bank Index since the start of 2011. And even with valuations back at levels of last fall, there is little sign of respite for U.S. banks. They are battling on multiple fronts. One immediate risk comes from the continued fall in interest rates, evidenced by this week's decline in the 10-year U.S. Treasury yield to less than 3%. Yields on shorter-term government debt also have fallen, with the two-year-note yielding 0.45%, compared with 0.61% a month ago. That piles the pressure on banks' net interest margins, or the difference in what it costs to borrow and what they can earn from lending or investing. Deposit costs are already negligible and can't be cut further. So when lending and investing rates come down, investing....
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