All of the companies in the KBW Bank Index rose in 2013, the first time that’s happened in a decade. The best performer was Cleveland-based KeyCorp, which gained 59 percent. The worst performer, Buffalo, New York-based M&T Bank Corp., advanced 18 percent. Every company also rose in the S&P Capital Markets Index, which includes Goldman Sachs and Morgan Stanley, as well as asset managers BlackRock Inc. and Legg Mason Inc.
The rally may help firms overcome employee resistance to deferred-stock payouts, Hall said.
‘Mild Correction’
“What happens when the music stops, does that create any problems?” he said. “It probably gets people cranky, but they’ll be in a situation at least for a while where the amount of gains that they’re still sitting on will overwhelm whatever could take place, if you see some kind of a mild correction.”
Debt markets also warmed to U.S. banks last year. For the first time since the crisis, bond buyers showed more confidence in financial firms than in industrial companies. Relative yields on bonds from Morgan Stanley to Wells Fargo were 13 basis points less than the average for industrial notes on Dec. 30, according to index data from Bank of America Merrill Lynch.
Bond buyers boosted their confidence in bank debt as lenders built deposits to record highs of $9.74 trillion and bolstered capital cushions to meet regulations designed to avert another banking crisis.
Stock investors may be more discerning when investing in banks in the coming year, Mutascio wrote in his note. Some past contributors to profits -- including mortgage fees and reduced provisions for loan losses -- may contribute less to earnings growth, he said.
“Investors will eventually migrate towards banks that have demonstrated the ability to generate better-than-peer profitability throughout various economic scenarios and environments,” Mutascio said.