US banks are tumbling as weak economic data fuels recession fears

(Reuters) – U.S. bank stocks fell on Monday as fears of a recession prompted investors to flee a sector closely linked to the health of the economy and focus on safe haven assets.

Citigroup led major bank losses with a 6% decline. Wells Fargo, Bank of America and Goldman Sachs each fell about 4%, while JPMorgan Chase and Morgan Stanley fell 2.5% and 3.5%, respectively.

Lenders are highly sensitive to an economic downturn because recessions increase concerns about credit losses due to higher unemployment, while demand for loans – a key driver of profitability – is also under pressure.

Investors have become increasingly nervous since a crisis of confidence hit the sector last year, partly due to higher interest rates, and took down three major regional players.

Shares of Customers Bancorp fell nearly 7%, while Banc of California, Citizens Financial and US Bancorp fell between 3.5% and 4.5%.

The S&P 500 Banks Index, which tracks a basket of major bank stocks, was last down 3.3%, while the KBW Regional Banking Index fell 4%.

The US unemployment rate rose to a nearly three-year high of 4.3% in July as a significant slowdown in hiring increased fears of a labor market deterioration and potentially left the economy vulnerable to a recession .

The employment report, which also showed that last month’s increase in annual wages was the smallest in more than three years, prompted some Wall Street institutions, including Bank of America Securities, to shift their interest rate cut expectations from December to September.

The S&P 500 Banks Index is down 7.2% month-to-date, compared with a 3.2% decline in the benchmark S&P 500, at last close. The KBW Regional Banking Index has lost 7.6% in the same period.

(Reporting by Manya Saini in Bengaluru; Editing by Sriraj Kalluvila)