The 2008 financial crisis wreaked havoc on the U.S. stock market. The indices crashed and individual investors lost billions of dollars in total, not to mention their confidence in the stock market.
But today is a new day. The indices have recovered. We’ve lived through and survived several separate corrections. We’ve made back a lot of our money. We’ve even come so far from the depths of the crisis that a movie has been made, which featured quite a few interesting and certainly outdated haircuts on some of our favorite actors.
This year, the bull market turned seven years old.
And yet, the financial crisis isn’t completely over for the bank stocks that started the ball rolling.
Bank Stocks in Hot Water
Earlier this week, the Department of Justice announced that Goldman Sachs Group Inc (GS) has agreed to pay $5.06 billion to settle claims that it misled investors during the financial crisis.
The settlement, which was disclosed in January just prior to Goldman’s fourth-quarter earnings report, includes a $2.385 billion civil penalty, $1.8 billion in relief for distressed borrowers and $875 million to resolve other claims.
As part of the settlement, Goldman acknowledged that it had lied about certain facts in regards to how it packaged, securitized, marketed and sold residential mortgage-backed securities in the years leading up to the 2008 crisis. While the bank had known that some of the home loans in the securities were in danger of failing, it had declined to inform investors and instead simply approved every mortgage-backed security issued.
And we all know how that turned out.
The settlement was negotiated by the Residential Mortgage-Backed Securities Working Group (RMBS), which was put in place in 2012 to investigate wrongdoing in the pre-financial-crisis market. Goldman’s settlement is one of five that the group has reached with other major bank stocks: JPMorgan Chase & Co. (JPM, $13 billion), Bank of America Corp (BAC, $16.6 billion), Citigroup Inc (C, $7 billion) and Morgan Stanley (MS, $3.2 billion). Goldman’s $5 billion settlement is among the lowest.
So what, if anything, does this mean for investors?
Unfortunately, I believe we’ve become immune to the big banks being forced to pay large fines for what took place 10 years ago at this point. However, it has certainly weighed on their shares, and it has reverberated even more on Main Street, where the bailouts still linger as a grand example of how big business comes before anything else, including the overall health of the nation.
Bottom Line
In the end, I don’t think these fines will lead to any sort of regulation that will break up the big banks. Of course, the presidential election could have some major long-term effects, but that’s a different story and could leave the stock market in a place where it would probably applaud the idea that the fine gravy train has come to a stop.
Looking at the bank stocks specifically, I still find names like Citigroup and Bank of America too opaque, but Goldman Sachs and JPMorgan could be poised to rally. Certain regional banks are starting to become attractive, as well.
Financials have performed better this week after the latest earnings, but an interest rate hike from the Federal Reserve would likely be a stronger catalyst to move stocks higher.
Still, banks in general have looked oversold recently and are looking for a spark.
Ironically, we may look back and see that this (or some other) mortgage-crisis-related fine was that spark they were looking for.
Curious what Wall Street insider Charles Payne really thinks? Get more behind-the-scenes insights, valuable market research and hands-on guidance including live stock recommendations from Fox Business’s rising star. Charles Payne’s Smart Talk is absolutely FREE for a limited-time only. Sign up today!
