Dow Slumps as Big Banks Turn Away Work

Dow Slumps as Big Banks Turn Away Work

The Dow Jones Industrial Average has slumped badly this morning, losing nearly 60 points by noon EST. With scant economic news on tap, a report that big banks may be avoiding profitable deals to dodge regulatory hassles might be depressing both bank stocks and the index.

A bit of news this morning from the Mortgage Bankers Association, which noted that refinance mortgage applications rose 4.7% last week from the week prior. The association reported that 30-year mortgage rates dropped somewhat, which may account for the increased activity.

Banks passing on sweet deals?
An article in The Wall Street Journal may be causing some concern this morning, indicating that big banks like JPMorgan Chase and Bank of America are leaving money on the table for fear of regulatory backlash. Both banks have apparently backed off on financing takeover deals that saddle the companies involved with too much debt.

Last summer, the Office of the Comptroller of the Currency sent letters directing that several institutions observe rules against takeovers that burden companies with debt six times that of their earnings before interest, taxes, depreciation, and amortization. Both JPMorgan and Bank of America have declined to become part of the Carlyle Group bid to acquire a unit belonging to Johnson & Johnson, ostensibly due to the OCC's request.

These activities are generally very profitable for banks, so investors may not be happy with the additional restrictions. JPMorgan Chase is down by more than 1% at noon, though Bank of America is up slightly.

Investors should be heartened by the fact that JPMorgan is still able to borrow money more cheaply now than before the financial crisis. Bloomberg noted that, despite all the troubles the bank has seen over the past year or so -- and considering the billions it has paid out in settlements and fines -- creditors aren't worried. JPMorgan borrowed more than $5 billion in notes yesterday, and enjoyed a better rate than peers Citigroup and Morgan Stanley.

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Originally published