Shares Gain As Banks 'Fess Up

Big bank stocks finally caught up to the broader market Wednesday morning as investors rewarded the banks for lifting the fog over trading losses in volatile emerging markets.

Citicorp (CCI) spiked 1 1/8 to 108 1/8 after disclosing late Tuesday that its profits would be reduced by $200 million after-tax in its third quarter.

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Citicorp (CCI)
The S&P bank index ($BIX) rose 0.9 percent. Bankers Trust (BT), JP Morgan (JPM), Republic New York Corp. (RNB) and BankAmerica (BAC) - most of which have reported losses in the hundreds of millions in markets like Russia's - followed Citicorp higher.

Adding support: A spate of banks hit their 52-week lows on Tuesday. Yet beyond the technicals, many investors now seem satisfied that the damage to the stocks has been done and it's time to move back into the financials.

"A lot of what we've seen can be generally characterized as a single event, although the dynamics in the emerging markets can create the risk in similar markets," said George Bicher, analyst at Bankers Trust.

After running a few "worse case scenarios," Bicher said he's still "pretty comfortable with most of these companies. The banks are not in the same situation as the 1980s when they were under-capitalized, under-reserved and without much earnings power."

Moreover, even if the emerging markets losses aren't chump change, analysts point out that the banks overall earnings still dwarf trading losses.

Yet, the question facing investors in financial stocks going forward is what kind of risks banks face as their revenue from market sensitive operations like trading and even asset management becomes more important.

That revenue source "has grown, and has been an improvement in the (earnings) growth and revenue, particularly in fees," Bicher notes.

Written By Emily Church