Can Bank Stocks Recover?

This year was meant to be a profitable one for US banks. The US Federal Reserve finally raised interest rates at the end of 2015, something many saw as a positive catalyst for the financial sector going in to 2016. However so far, banking stocks have gotten of to a rocky start as investors shied away from the industry amid market turmoil. What Happened? Banking stocks are low on investors' list of must-haves right now, and much of that stems from uncertainty and past experience. When markets crashed nearly a decade ago and the US slipped into a recession, banking firms were hard hit and investors haven't forgotten. While the US economy doesn't appear to be headed in the same direction, many traders are still worried about putting money into the financial sector at a time when markets are uncertain. Energy Prices Weigh Another concern is energy prices. Big name banks that have kept energy firms afloat with lines of credit while oil prices took a nose dive may have to shoulder those costs soon when the firms default on their loans. Citigroup Inc. C revealed that it had boosted its loan-loss reserves by $494 million during the fourth quarter. Many worry that with energy prices forecast to remain low for some time, banks will struggle to cope with unpaid loans. Bargain Hunting However, there are some contrarian investors who see the current slump in banking stocks as an opportunity to snap up strong firms at bargain prices. One popular choice among investors has been Wells Fargo WFC. So far this year, Wells Fargo shares have declined nearly 13 percent, but the firm boasts a relatively strong balance sheet and an impressive efficiency ratio. Others are looking to Bank of America BAC as the firm is finally emerging from years of legal trouble linked to the financial crisis. Many believe that the company's reforms will prove profitable now that the company is moving beyond damage control.