Large-cap banks including Citibank (NYSE: C), Bank of America (NYSE: BAC) stand to benefit significantly from a report from the Department of Labor indicating lower jobless claims and an improving employment situation as a whole.
The report released today by the Department of Labor indicates that jobless claims fell by 27,000 during the week ending on February 27th, down to 469,000. The Labor Department also said that the four week moving average of unemployment claims dropped by 3,500 to 474,250. Jobless claims are currently at about the lowest rate that they have been in a year.
Some analysts believe that the numbers may be better than they actually appear. Massive snowstorms and unusually cold weather across the nation may have hampered potential workers from going out and finding new jobs, prevented interviews from taking place and may have slowed down the hiring process. If March’s spring thaw comes as it normally does, the jobless claims situation may be better than it was during the month of March.
Banks are still losing big from real estate as the face losses on foreclosed properties, short sales, and home loan modifications under the federal governess’ Home Mortgage Affordability Program. The only way that large-cap bank’s real estate units will see a permanent return to profitability and stability is to make sure that their customers remain employed and can make their mortgage payments. As the unemployment rate declines in the United States, it can be expected that a similar decline will be seen in the foreclosure rate and the need for home loan modifications.
Citibank, Bank of America and others will also benefit as the unemployment rate declines because they are likely to see lower default rates on their consumer debt lines and see increased deposits in their accounts divisions.
