Banks Give Financials A Boost; B. Of A. Leads

NEW YORK (MarketWatch) — Financials ended the week on a high note, capping off a day of gains as one of the top performers of the S&P 500 Index on Friday as investors expressed relief that the long-awaited Moody’s bank downgrades had come to pass.

Among the U.S. banks that were downgraded, Bank of America Corp. (US:BAC)  led the way with a 1.5% gain. J.P. Morgan Chase & Co. (US:JPM)  and Morgan Stanley (US:MS)  — both of which were downgraded two notches — weren’t far behind with 1.4% and 1.3% increases, respectively. Only Goldman Sachs Group Inc. (US:GS)  saw a decline, its shares retreating 0.3%. Read MarketWatch Trading Deck on why Moody’s downgrade was positive for three banks.

In the broader market, the Financial Select Sector SPDR ETF (US:XLF), which tracks the financial stocks in the S&P 500 (US:SPX), rose 0.9%. The KBW Bank Index (US:BKX), which tracks the 24 leading U.S. banks, increased 1.4%.

Analysts suggested that the report’s arrival finally put an end to speculation over what the downgrades might mean for banks’ funding costs.

“The negative impact from funding costs and collateral calls appears modest, especially in light of capital and liquidity improvement since the financial crisis,” said Sandler O’Neill principal analyst Jeffery Harte in a note to clients.

“Although a downgrade is not a positive, we are encouraged that the downgrades were in line or better than expectations and it appears that a headwind has been removed,” Keefe Bruyette & Woods analysts wrote in a research note Friday.

“We don’t foresee the ratings changes to significantly alter the business lines at any of the U.S universal banks,” they added.

Investors welcomed more good news as the European Central Bank said it is easing its lending rules for banks and accepting a wider range of collateral — including car loans and mortgage-backed securities — in a move widely seen as benefiting struggling Spanish banks.

Other gainers of note include Regions Financial Corp. (US:RF), whose shares were lifted by 2.5%, and Ameriprise Financial Inc. (US:AMP), which added 2.4%.

Among the Dow Jones Industrial Average’s other financial stocks, American Express Co. (US:AXP) added 0.8% and Travelers Cos. (US:TRV) ticked 1.2% higher.