Community Banks Are Buying Back Stock. Should You?

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Banks are making lemonade out of investors’ lemons — in the form of buybacks.

Fears about how the coronavirus will impact financial institutions has depressed bank valuations. A number of community banks have responded by announcing that they’ll buy back stock.

Bank Director reached out to Eric Corrigan, senior managing director at Commerce Street Capital, to talk about why this is happening.

The Community Bank Bidder
Much of the current buyback activity is driven by community banks with small market capitalizations. The median market cap of banks announcing new buybacks now is $64 million, compared to a median of $377 million for 2019, according to an Aug. 27 report from Janney Montgomery Scott.

One reason community banks might be buying back stock now is that their illiquid shares lack a natural bidder — a situation exacerbated by widespread selling pressure, Corrigan says. By stepping in to buy its own stock, a bank can help offset the absence of demand.

“You can help support it or at least mitigate some of the downward pressure, and it doesn’t take a lot of dollars to do that,” he says.

Buybacks Are Accretive to Tangible Book Value
Many bank stocks are still trading below tangible book value. That makes share buybacks immediately accretive in terms of both earnings per share and tangible book value.

“If you can buy your stock below book value, it’s a really attractive financial trade. You are doing the right thing for shareholders, you’re supporting the price of the stock, and financially it’s a good move,” Corrigan says.

Buying Flexibility
Share buyback announcements are a statement of intention, not a promise chiseled in stone. Compared to dividends, buybacks offer executives the flexibility to stop repurchasing stock without raising concerns in the market.

“If you announce a buyback, you can end up two years later with exactly zero shares bought,” Corrigan says. “But you signaled that you’re willing, at a certain price under certain circumstances, to go out there and support the stock.”

Buybacks Follow Balance Sheet Bulk-Up
Many of the nation’s largest banks are under buyback moratoriums intended to preserve capital, following the results of a special stress test run by the Federal Reserve. Banks considering buybacks should first ensure their balance sheets are resilient and loan loss provisions are robust before committing their capital.

“I think a rule around dividends or buybacks that’s tied to some trailing four-quarter performance is not the worst thing in the world,” he says. “The last thing you want to do is buy stock at $40 and have to issue it at $20 because you’re in a pinch and need the equity back.”

Many of the banks announcing repurchase authorizations tend to have higher capital levels than the rest of the industry, Janney found. The median total common equity ratio for banks initiating buybacks in 2020 is about 9.5%, compared to 9.1% for all banks.

Why a Buyback at All?
A stock price that’s below the tangible book value can have wide-ranging implications for a bank, impacting everything from a bank’s ability to participate in mergers and acquisitions to attracting and retaining talent, Corrigan says.

Depressed share prices can make acquisitions more expensive and dilutive, and make potential acquirers less attractive to sellers. A low price can demoralize employees receiving stock compensation who use price as a performance benchmark, and it can make share issuances to fund compensation plans more expensive. It can even result in a bank taking a goodwill impairment charge, which can result in an earnings loss.

Selected Recent Share Repurchase Announcements

Bank Name Location, Size Date, Program Type Allocation Details
Crazy Woman Creek Bancorp Buffalo, Wyoming
$138 million		 Aug. 18, 2020
Authorization		 3,000 outstanding shares,
or ~15% of common stock
PCSB Financial Corp. Yorktown Heights, New York
$1.8 billion		 Aug. 20, 2020
Authorization		 Up to 844,907 shares, or
5% of outstanding common stock
First Interstate BancSystem Billings, Montana
$16.5 billion		 Aug. 21, 2020
Lifted suspended program		 Purchase up to the remaining
~1.45 million shares
Red River Bancshares Alexandria, Louisiana
$2.4 billion		 Aug. 27, 2020
Authorization		 Up to $3 million of outstanding shares
Investar Holding Corp. Baton Rouge, Louisiana
$2.6 billion		 Aug. 27, 2020
Additional allocation		 An additional 300,000 shares,
or ~3% of outstanding stock
Eagle Bancorp Montana Helena, Montana
$9.8 billion		 Aug. 28, 2020
Authorization		 100,000 shares,
~1.47% of outstanding stock
Home Bancorp Lafayette, Louisiana
$2.6 billion		 Aug. 31, 2020
Authorization		 Up to 444,000 shares,
or ~5% of outstanding stock
Mid-Southern Bancorp Salem, Indiana
$217 million		 Aug. 31, 2020
Additional allocation		 Additional 162,000 shares,
~5% of the outstanding stock
Shore Bancshares Eston, Maryland
$1.7 billion		 Sept. 1, 2020
Restatement of program		 Has ~$5.5 million remaining
of original authorization
HarborOne Bancorp Brockton, Massachusetts
$4.5 billion		 Sept. 3, 2020
Authorization		 Up to 2.9 million  shares,
~5% of outstanding shares

Source: Company releases

Surging Stock Prices and Your Long-Term Incentive Strategy

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incentive-3-6-17.pngWith the Trump administration, investors are anticipating an easing in banking regulations and modest increases in interest rates. Accordingly, the market response to Trump’s election sent bank stock prices surging. From election to year-end, the Keefe, Bruyette & Woods NASDAQ Banking Index, which is made up of money center banks, as well as regional banks and thrifts, was up 22 percent, alongside a very strong 7 percent increase in the S&P 500. Full year returns were even better, and they were better for many smaller banks as well. For example, banks with total assets between $1 billion and $10 billion saw returns of 20 percent to 65 percent.

In our experience, large swings in stock prices trigger important design considerations for long-term incentive grant strategies and grant policies.

Long-term Incentive Strategies—Target Value Versus Fixed Share
Long-term incentive strategies among banks typically incorporate the use of full-value awards, such as restricted stock or performance shares, or stock options.

There are two common approaches used to determine the number of shares granted under equity awards—a target value approach and a fixed share approach.

  • Target value approach: The bank targets a specific award “fair value.” Thus, as stock prices surge, the number of shares granted is reduced to deliver the same grant value. Conversely, when stock prices decline, more shares are granted. This is the most common method for determining the number of shares awarded.
  • Fixed share approach: The bank targets a specified number of shares. Thus, as stock prices surge, the fair value of the award also increases. The volatility in grant value is one of the reasons this approach is less common.

No matter the approach used, sudden surges in stock prices will result in significant changes in either the number of shares granted or the fair value of the award, assuming no adjustments are made to the grant strategies. For example, the increase in stock prices over the past year for banks with assets between $1 billion and $10 billion will likely result in a 16 to 40 percent decline in shares delivered through a target value approach or a 20 to 65 percent increase in fair values at banks utilizing a fixed share approach.

The advantages in delivering equity through a target value approach include providing tighter controls over the accounting expense of long-term incentive programs, a clearer understanding of the award value to the participant, greater consistency in disclosed compensation values for proxy-reported officers, and maintaining alignment with competitive market compensation levels. However, when stock prices surge, no matter the cause, the resulting reduction in shares under a target value approach may be perceived as a so-called performance penalty by participants. Your participants in the plan might wonder, “The stock price went up and you cut my shares?”

Alternatively, under the fixed share approach the increase in the fair value of the award may result in higher compensation expense, greater variability of disclosed compensation, and compensation levels that are positioned higher relative to the market than the bank’s stated compensation philosophy.

Considerations
In light of the potential variability in grant values or the number of shares issued, banks should thoroughly review the impact of recent stock price changes on their long-term incentive grant strategies to avoid unintended consequences.

Target value programs can be adjusted through an increase in the value delivered or revisions to the approach used to determine shares, or a combination of these two approaches. Generally, an increase in the value delivered would not correspond directly with the increase in stock price, for example award values would increase 20 to 30 percent of the gain in stock price. In adjusting the approach used to determine the number of shares issued, banks can use an average stock price (for example, 90 to 150 days) rather than the price on the date of grant.

Conversely, fixed share programs would be adjusted to reduce the grant value through a reduction in the number of shares issued. For example, shares granted would be reduced by 10 percent to 15 percent of the gain in share price.

In all cases, the impact of adjustments to long-term incentive strategies on total compensation should be evaluated against market compensation and share utilization levels as well as the bank’s stated compensation philosophy. Further, the rationale for adjusting long-term incentive strategies should be communicated clearly to program participants.

Taking the Fear out of Phantom Stock

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The use of equity compensation has increased in the banking industry in recent years, coinciding with enhanced compensation guidelines from the Securities and Exchange Commission (SEC), bank regulators, and the Dodd-Frank Act. These parties recommend that some executive compensation be deferred and tied to long-term performance. Equity programs typically accomplish both of these goals. A recent study of 177 public banks from Blanchard Consulting Group’s internal database found that the use of equity grants as a percentage of total compensation increased two to three times from 2009 to 2013, depending on the asset size of the bank.

Asset Size 2009 Proportion of Equity to Total Compensation 2013 Proportion of Equity to Total Compensation
Over $1B 15% 26%
$500M to $1B 4% 12%
Under $500M 4% 7%

Most publicly traded banks will use compensation plans tied to the organization’s stock to distribute long-term incentives in the form of stock options or restricted stock. Some private or thinly traded banks will use these types of “real” stock programs; however, many of these banks have limited availability of actual stock. As an alternative, private banks may use synthetic equity, such as phantom stock or stock appreciation rights, which are settled in cash.

Phantom stock programs are modeled to look and feel like restricted stock, where the participant receives the full value of the share plus any appreciation over time. The value of phantom stock is typically linked to the company’s stock price or book value per share. In addition, dividends could be factored into the phantom stock value during the vesting period, typically 3-5 years. Ultimately, the phantom stock awards will be settled in cash.

Advantages to Synthetic Equity
Banks concerned with equity dilution often prefer phantom stock, which provides a value comparable to that of restricted stock, but does not result in actual equity dilution. The value of the phantom stock is paid out in cash upon vesting, so the officer still receives value commensurate with having a real share of stock. Because phantom stock is settled in cash, it does not receive equity-based accounting treatment (value fixed at grant date). Instead, the expense is adjusted over time to reflect changes in the bank’s stock price or book value. The advantage of using phantom stock is the absence of any share dilution.

Stock Appreciation Rights (SARs) are another form of synthetic equity that are settled in cash. Cash SARs work similarly to stock options, as SARs give the participant the right to any appreciation in stock price or book value between the grant date and settlement. The appreciation value is paid in cash and taxed as ordinary income. Similar to phantom stock, cash SARs do not receive equity-based accounting treatment. The SARs are re-valued periodically, and the expense is adjusted to reflect the changes in value throughout the vesting period. This could lead to expensive accruals if the underlying stock price increases dramatically. Similar to phantom stock, there is no share dilution.

Other Considerations
Before implementing any type of equity or long-term incentive plan, a bank should consider a number of factors, such as the following:

  1. Performance-based awards: In today’s environment, equity awards are typically based on the achievement of bank-wide, department and/or individual goals.
  2. Service vesting: We typically see three to five-year vesting schedules within the banking industry. The vesting schedule may vary by grant or employee based on the bank’s retention goals.
  3. Dividends: The board should determine when and if the plan participant will receive value for dividends. This provision can be customized by the bank for each eligible employee.
  4. Termination of employment: If a participant voluntarily terminates employment during the plan term, the employee typically forfeits any unvested awards.
  5. Death or disability: Most banks will accelerate vesting and allow the participant or beneficiary to exercise shares in the event of a disability or executive’s death. All early disbursements will need to comply with Internal Revenue Service (IRS) restrictions (section 409A).
  6. Change-in-control: Shares will typically vest immediately and be paid upon the acquisition or merger of the bank if an employee is terminated as a result, also known as a “double trigger”.
  7. Clawback provision: This allows the bank to recoup incentive compensation payments made to plan participants in error from any unvested phantom stock or SAR grant.

In order to retain and attract talent, private banks need to ensure that they have the compensation tools available to compete with public banks that use real stock compensation. By using phantom stock or SARs settled in cash, private banks can help ensure that they are competitive with the market.

Does Market Volatility Impact Bank M&A?

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While the volatility in the stock market garners the attention of investors, it is also a worrisome topic for bank boards. As the Federal Reserve considers its first rate increase in close to 10 years—and China’s growth outlook continues to wane and impact economies around the world—bank boards have to consider the impact on their growth strategies, including any planned capital raises, IPOs or mergers and acquisitions.

Certainly, unexpectedly large swings in daily share prices make it difficult to price a potential M&A deal. This comes in an environment where bank M&A volume has not increased much, if at all, depending on how you look at the numbers. As you can see in the chart below, we have had just 34 deals with a value of more than $50 million year to date through Sept 7, 2015, which puts us slightly below the rate of 2014, according to Mark Fitzgibbon, a principal and the director of research at investment bank Sandler O’Neill + Partners.

Most bank deals are smaller than $50 million in value, however. In an upcoming article for BankDirector.com, Crowe Horwath LLP, a consulting and accounting firm, looked at all deal volume through June 30, 2015, and found 140 deals, slightly above last year’s volume in the same time frame of 130 deals.

Clearly, the lion’s share of the transactions has been small bank deals, and we have not seen many large transactions this year. Fitzgibbon is of the opinion that there are three dynamics that have slowed the pace of consolidation: (a) recent market volatility makes it tough to price deals, (b) large banks have generally been more internally focused than M&A focused, and (c) regulators have been slow to approve some deals, giving pause to some buyers.

This complements the perspectives of Fred Cannon, executive vice president and global director of research at Keefe, Bruyette & Woods, who reminded me that the pace of M&A “is simply a lot slower than it was prior to the crisis, and those of us who remember pre-crisis M&A, it will likely never be the same. We don’t have national consolidators buying up banks, and regulation does not allow the same speed of consolidation we previously had.”  In Cannon’s words, “volatility certainly slows deals a bit, but it postponed deals rather than stopped them.”

Contrast that with initial public offerings, which can really take a beating in a volatile market. Depending on the market and the individual bank’s potential value, it may no longer make sense to price an IPO, or it may make sense to delay it.

Here, I agree with Cannon’s assertion that a weak market is “more detrimental to IPOs than M&A. With M&A, the relative value of the buyers’ currency is often more important than the absolute level.” So if values fall for both the buyer and seller, the deal may still make sense for both of them. For potential deal making, market volatility is rarely good news, but it may not be as bad as it seems.

Are You at Risk for a Trading Fraud?

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stock-fraud-9-11-15.pngYou’ve probably read recently about trading-related frauds where individuals manipulated markets for their own gain. Several of these frauds were highly organized affairs, with traders using alternate channels to communicate with one another in order to manipulate individual trades and market conditions. The most recently settled foreign exchange action came to light once a reporter from a national business publication published the details of the collusion.

Most of the entities involved are relatively large organizations, with sophisticated governance and internal control programs. One has to ask, how could this occur, especially in this world where virtually anything done on a system can be tracked, stored, and retrieved? With hindsight, we can look at these frauds and glean some lessons by walking through the internal audit process at a high level. What can directors do to help make sure something like this does not happen at their organizations?

Risk Assessment
Are trading operations and similar functions scored high enough in the periodic risk assessment? By similar functions we mean any job function such as procurement or sales that has the following characteristics:

  • has a high level of discretion and is regularly in the market
  • has the de facto checkbook of the company
  • is under significant pressure to make revenue or save expenses
  • requires a specialized skill set to execute the role.

The lesson here is that these market roles, in many cases, have a risk profile higher than anticipated.

Audit Planning and Execution
Do you expect internal audit to master every function within your organization? Obviously, internal audit functions best when the auditors have knowledge of the business and the controls around that business. However, is it realistic to expect that internal audit can cover every risk with internal resources? Some prudent borrowing or “renting” of resources with specialized skill sets might be needed to adequately cover some types of risk.

Ongoing Monitoring
Virtually every organization in the U.S. with its own systems has some sort of user computing policy that describes the acceptable use of technology. Also prevalent is the use of monitoring tools to continuously track how employees are using systems. For some time now, organizations have been keenly aware of the damage that can be caused by employees going to inappropriate websites. Yet traders executed one of the well publicized trading frauds during normal business hours, using “back channel” means such as chat rooms provided through third parties. Certainly, the technology to monitor usage has existed for some time, however the connection between the usage and the risk was just not recognized.

Conclusion
Certainly, collusion is inherently difficult to detect or prevent. However, recent frauds highlight the fact that those with an organization’s checkbook can present a risk much greater than previously thought, and detecting or preventing similar frauds will require diligence throughout the risk management cycle.

Stock Analyst: Own Bank Stocks Now

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Anthony Polini is a managing director at Raymond James & Associates in New York and covers big and regional banks, such as JPMorgan Chase & Co., Citigroup Inc. and Hudson City Bancorp. This is a longer version of an interview that appeared in the fourth quarter issue of Bank Director magazine, where Polini talks about the cyclical nature of bank stocks and why they are a good investment right now given the country’s slow recovery.

What is your outlook for bank stocks?

You tell me the results of the presidential election, what interest rates are going to be by the end of the year and I’ll tell you what will happen with bank stocks. I personally think a Republican victory [in the presidential election] would be better for bank stocks and the stock market in general. The one caveat is interest rates. There is a point where you keep rates so low for so long, even if you have growth, the incremental yield comes down, which is a headwind for earnings growth.

One thing you have to realize is that bank stocks are cyclical. For many years, bank stocks were viewed as interest rate plays but in reality, they are very cyclical. A positive comment from the Federal Reserve [chairman Ben Bernanke] could send stocks up 5 percent. Increased concern about Spanish debt could mean Citigroup, JPMorgan and Bank of America lead the market lower. If the news is generating a negative outlook, the banks are going to move down.

Given the fact the bank stocks are cyclical, is this a good time for investors to buy them?

You want to load up on bank stocks in the middle of a recession. Sometimes you are in a recession for several quarters before you [determine] when the recession began. You want to overweight banks from the latter stages of a recession to the mid-stages of a recovery. One of the problems with this recovery is we are in the early stages of a recovery. It is slow. The economy is on two or three cylinders, not eight cylinders.

So you think investors should be sure to have bank stocks in their portfolio? What are your favorite picks?

Yes. You have some that are super, high-quality names and have high dividends. Those banks tend to lag [the rest of bank stocks] on positive days. A top pick in that category has been [the $43.5-billion asset] New York Community Bancorp. NYB is the ticker symbol. We have it rated a strong buy. It has a dividend yield of 7.5 percent and trades slightly above book value. It’s at a relatively safe valuation to play the sector and pick up a high dividend yield.

The mega-cap banks clearly have the most attractive valuations. They also have more risk related to the global economic outlook. They probably have more volatility than the small- to mid-cap banks. In general, the more defensive names tend to be the smaller banks with less global exposure.

We’ve had very few M&A deals lately. But two of the banks you cover are merging in one of the biggest deals all year. M&T Bank Corp. is buying Hudson City Bancorp. What’s your take on that deal?

I think Hudson City was on everybody’s list as a likely seller this year. The chief executive officer recently had some health issues. It is a quality franchise but the business model—leveraging up debt, sticking to residential mortgages—[isn’t] as good as it used to be. I think they were under pressure to redefine themselves, which they started to do, and I think the decision to sell was probably a wise one. What M&T paid didn’t look exorbitant. [The deal value was $3.8 billion, or 85 percent price to tangible book value.] Another way to look at it is, it’s a very good deal for M&T. It’s not a huge deal but it’s a good deal for them. It was a good price. The only thing that didn’t make sense to me was the high cash component, [60 percent was stock and 40 percent was cash]. Both stocks have done well since the announcement. But if you are going to sell cheap without a bidding process, one would think you would take all stock.

The Mixed Blessing of Bank Deposits

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mixed-blessing.jpgThe U.S. banking industry is drowning in deposits and that’s not necessarily a good thing. As of June 30, deposits in U.S. banks (but excluding credit unions) totaled $8.9 trillion, up nearly 8.5 percent from June 30, 2011, according to the Federal Deposit Insurance Corp. Total bank deposits have actually increased every year since 2003, although the increase from 2011 to 2012 was the sharpest jump over that time.

There’s no great mystery why this is happening. The U.S. economy’s uncertain outlook and a volatile stock market has led many consumers and businesses to park their investment funds in insured deposit accounts rather than risk losing a big chunk in another market meltdown. Normally banks would be quite happy to have a surfeit of low-cost deposit funding, but it’s actually something of a mixed blessing nowadays. Slack loan demand and low rates of return on investment securities like U.S. Treasuries, the latter a direct result of the Federal Reserve’s easy money policy in recent years that has kept interest rates low, are making it very difficult for banks to earn a decent return on all those deposits.

What makes this multi-year increase in deposits so interesting is that it has occurred at the same time banks have been closing branches and pruning their networks. As of June 30, according to the FDIC, there were 97,337 bank branches nationwide, down from a high of 99,550 in 2009, and there has been a consistent year-over-year decline since then. There’s no mystery why this is happening either. Two seminal events since 2010—new restrictions on overdraft charges and a cap on debit card fees—have taken a big bite out of the profitability of most retail banking operations and banks have responded by cutting costs, partly through layoffs but more so through branch closings. That deposit levels have continued to rise, even as the number of branches has declined, has no doubt made it easier for banks to trim their brick-and-mortar networks.

But here’s the rub. What happens if in a few years the U.S. economy makes a strong comeback and retail investors are once again confident enough to put their money into the stock market? Banks don’t have to compete with the stock market now for consumer funds, but they would in that scenario. Most banks have developed multi-channel distribution systems with the traditional branch as the hub and alternatives like automated teller machines, in-store branches, the Internet and more recently the mobile phone as spokes. And while remote channels like online and mobile have steadily grown in popularity in recent years, how effective will they be as deposit gathering tools if banks must once again compete for funds?

Here’s my best guess at what the future holds: Don’t be surprised if, say, five years from now the trend has reversed itself and banks are once again opening new branches.  It might be like a relic of days gone by, but a deposit war between Main Street and Wall Street would be just the thing to give the hoary old bank branch a new lease on life.

Small Banks See Small Gains in Valuation: An Update on the Little Guys

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where-u-stand.pngSmall bank stocks that don’t trade on the big exchanges have missed out on the price gains of the big bank stocks lately. During the third quarter, the Monroe Securities community bank stock index rose .7 percent and its thrift index climbed 4.1 percent, while the SNL Bank and Thrift Index climbed 7.1 percent, according to the firm, which is a market maker for more than 1,000 community bank stocks.

That’s a change from the second quarter, when big banks were sucking wind and community stocks saw slight gains.

Valuations for community banks improved slightly during the third quarter. The average price to tangible book value for community banks, defined as banks below $1 billion in assets, was 78 percent, according to Monroe Securities. That was an improvement from about 76 percent in the prior quarter but a big climb from end of 2011, when community bank stocks sunk to a low of about 66 percent price to tangible book value.

The number of small bank mergers or acquisitions improved slightly in the quarter, at 49, compared to 45 the quarter before, and 50 deals in the first quarter. M&A deal values fell a bit, from 125 percent of tangible book value to 95 percent in the third quarter.

Monroe Securities uses stock values based on OTC Markets and OTC Pink, an electronic bulletin board for stocks that don’t trade on the New York Stock Exchange or NASDAQ OMX.

For the full report, click here.

* Trends are based off banks with less than $1 billion in assets.
* Source: Monroe Securities

Bank stocks plummet: It’s the economy, stupid.

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stock-plummet.jpgThe stock market has been filled with irony (not to mention misery) lately.

Investors flocked to the safety of U.S. Treasuries, despite the fact that Standard & Poor’s had just downgraded the U.S. debt rating late Friday.

Bank of America led the market’s precipitous decline on Monday, falling 20 percent to $6.41 per share, on news that AIG was suing the bank for the insurance company’s financial problems.

The Dow Jones Industrial Average fell 5.6 percent Monday to 10,810, following last week’s biggest weekly drop since 2008, then surged in early trading Tuesday as bargain hunters came calling.

The Keefe Bruyette & Woods Bank Stock Index, which consists mostly of large-cap banks, fell 10.7 percent Monday and then recovered somewhat by gaining 7 percent the next day.

The stock market pundits had been talking about what little impact the S&P downgrade would have, and investors reacted by abandoning stocks instead.

Analysts at KBW say what’s really happening is investors are worried about the economy, not the downgrade, and that doesn’t bode well for financial stocks.

But ironically, there was no new news about the economy to warrant such a free fall, only news about the debt rating.

Perhaps investors are beginning to believe the recovery will be slow to nonexistent for a long time and it took until late summer for that to sink in. There’s also the fact that many of them have the equivalent of “panic button” orders to sell when stocks fall below a certain point.

Bank stocks often take the biggest hit when the economy falters. High unemployment and low consumer confidence means fewer loans for everything from homes to shopping centers. Plus, many of the largest banks in the country have a lot of earnings exposure to the world’s stock markets, in the form of investment banking and trading revenues.

And as banks cut back on expenses because revenue is tight, so will they cut back on employment, as evidenced by a Bloomberg News breakdown of where all the job losses will be in banking.

Scott Brown, chief economist at Raymond James & Associates, said in his weekly commentary that: “Many commercial banks, for example, have large holdings of Fannie Mae and Freddie Mac debt. These banks may, in turn, move to boost capital and reduce lending to consumers and businesses,” as a result of the debt downgrade.

Predictably, investors are being told not to panic, just at a time when it seems like everyone is panicking.

Even analysts at S&P, whose downgrade was surrounded by so much tumult, said they thought stocks have been “oversold,” and that the U.S. will likely avoid another recession, according to Forbes.

Jerry Webman, chief economist at Oppenheimer Funds in New York, told ABC News: “The most important thing for people to do right now is to take a deep breath, whether you’re reacting to the latest, pretty good job numbers or you’re still in shell shock from everything else we’ve learned in the last week.”

Sigh.