Stock Traders Blog

News come out that

Sovereign Bank lost $763.8 million in the first quarter after setting aside several hundred million dollars to absorb potential losses on an escalating number of troubled construction and commercial loans.

The net loss, compared with net income of $119.2 million in the year-ago period, underscores how rough economic conditions will continue to haunt the bank over the next year.

Sovereign said its provision for anticipated loan losses was $505 million in the first quarter, compared with $135 million in the year-ago quarter.

See original news here Sovereign books $763M Q1 loss, bad loans spike

There are not much events on next Monday. If other market is not doing well on Monday then very likely it will be a down day in US. Sovereign’s news is not too big a news. But if no other events draw the market’s attention the bank sector most likely will see it as a selling excuse at least when the market is open. I still believe Well Fargo price at $24.80 is too high and have room to go down.

US Bank Corp (USB) recently announced that they can exit TRAP within a matter of a few weeks. The market didn’t have much enthusiasm on the news yesterday. I feel when that actually happen it will raise the eyebrows of many long term investors.

When that happen the prefer share’s dividend can possibly be used to pay out as common share dividend and it will be a major step closer to return to a sustainable dividend stream. It matters a lot as a bank. If a big bank can not pay dividend who can? I think the recent activities of some of the big banks like JP Morgan and US Bank to sell debt without Fed guarantee is a result of them trying to convince the government that they have the ability to repay TRAP. As you may remember one of the requirements of the government to allow banks to repay TRAP is to prove they can sell debt without federal guarantee.

So looking forward I feel those banks that are able to repay TRAP like US Bank(USB), JP Morgan(JPM) and Bank of New York Mellon (BK) will lead a small rally of the bank sector and traders should be very careful about taking short position on banks.