Solid earnings fail to stop the selloff! Rising credit concerns send US bank stocks to longest losing streak since 2008.

Despite another round of solid earnings from some of the largest US banks so far, Bank of America Corp shares are suffering their longest losing streak since the 2008 financial crisis. Last week, earnings from the four largest US banks provided further strong evidence that US consumers and corporate clients remain resilient even as borrowing costs have climbed sharply. JPMorgan (JPM.US), Bank of America Corp (BAC.US), Citigroup (C.US) and Wells Fargo & Company (WFC.US) set aside a combined $7.6bn for credit losses in the third quarter, down about 3 per cent from a year earlier. Actual loan losses at the four banks fell 5 per cent over the same period, while loan volumes grew nearly 10 per cent. Yet investors appear unconvinced. The benchmark KBW Nasdaq Bank index (BKX) edged lower on Monday. The index has fallen for six straight weeks and is down 11 per cent since early September, according to data, marking its longest weekly losing streak since the 2008 financial crisis. The sell-off in Bank of America Corp shares comes as credit managers around the world appear increasingly worried about what may come next. A recent survey of portfolio managers at large banks and other global Financial Institutions, Inc. credit portfolios found that about 60 per cent of respondents expect global corporate default rates to rise over the next 12 months, while 85 per cent expect credit spreads on North American junk bonds to widen over the next three months. That is a sharp increase from the second-quarter survey, when 40 per cent of respondents expected corporate default rates to rise over the next 12 months and 50 per cent expected North American junk bond spreads to widen over the following three months. Som-lok Leung, executive director of the International Association of Credit Portfolio Managers, said in an emailed statement that credit portfolio managers "do see that investors still have some risk appetite, but they also find that quite a few companies that had been barely keeping their heads above water are starting to reach the end of the road". Analysts at Morgan Stanley said in a note to clients on Monday that, apart from weakness in a few commercial sectors, bank credit conditions remain "benign" overall. Still, bank executives speaking on earnings calls this month have generally been more cautious than in the second quarter. Investors' concerns centre on one question whether persistently high interest rates will eventually weigh on borrowers. Ebrahim Poonawala, analyst at Bank of America Corp, wrote in a note on Monday that, by the same logic, falling rates "could potentially drive a rally in bank stocks". He added: "Ideally, this should be underpinned by lower energy prices or easing inflation pressures." However, Bruce Van Saun, chief executive of Citizens Financial (CFG.US), said market concerns about the current level of borrowing costs are "overblown". Van Saun said: "I think these concerns are somewhat overdone." He noted that current rate levels are "actually not yet enough" to put pressure on the bank's borrowers or to hamper its trading business. Still, he acknowledged that "there remains a lot of uncertainty" over how much further rates could rise.