Banks come up against Fed, housing, bond buying

It’s been a tough slog for the banks these past few days with their shares tumbling along with the rest of the market after the U.S. Federal Reserve announced plans to begin curtailing its bond-buying program.

Investors around the world took the news as a signal that the liquidity from the Fed’s stimulus efforts, which has been coursing through global markets and pushing up stocks, is about to dry up and they reacted accordingly.

But the slump in bank shares that took place over the past few days was also a continuation of a trend that’s been going on since the end of May when banks posted second-quarter results that were slightly below analyst expectations.

Their shares are now trading roughly where they were at the start of the year.

“Banks are under pressure from continued stories about [high] household debt and the housing market,” said Todd Johnson, a portfolio manager at BCV Asset Management in Winnipeg whose funds own bank stocks.

Many investors worry the bull real estate market is starting to turn, potentially depriving lenders of a major source of revenue that helped drive profits going back a decade or more. Finance Minister Jim Flaherty and former Bank of Canada governor Mark Carney have repeatedly warned over the past few years that Canadian households’ record debt levels from mortgage borrowing have left the economy vulnerable.

Recent figures from Statistics Canada suggest consumers have taken the warnings to heart and are finally applying the brakes. But it will be a long time before debt levels return