Last year was a disastrous year for global financial stocks.
This year could be different.
In the European Union (E.U.), banks underperformed every other industry group last year, due to concerns about their loans to troubled European countries such as Portugal, Italy, Ireland, Greece and Spain (PIIGS). As bonds of all of the PIIGS tumbled, investors feared that the big banks would have to raise billions in capital by issuing shares, thereby diluting existing holders' stakes.
In the United States, the main problem facing banks last year was continued weakness in the housing markets and accusations of improper foreclosure practices at the country's largest lending institutions. Bank of America (NYSE: BAC) was hit particularly hard in 2011 and was among the five worst-performing stocks in the S&P 500 Index for the year.
But 2012 couldn't be more different. The banking sector of the Bloomberg Europe 500 Index is up nearly 20% so far this year, doubling the performance for the index as a whole. And in the U.S., the S&P Financials Index has been the leading sector in the S&P 500.