Ask Matt: Dangerous to own bank stocks now?

Q: Is it dangerous to own bank stocks now?

A: The grilling Wells Fargo (WFC) CEO John Stumpf took before the House Financial Services Committee rattled the bank’s investors. Wells Fargo shares dropped 94 cents, or 2.1%, to $44.37 Thursday after the testimony. That pushed the bank’s market value down 9% since the scandal broke.

The beatdown in shares of the formerly most valuable bank is a warning to bank investors of regulatory risks. Bank investors have reason to be concerned following the tongue lashing Stumpf took from the House panel.  Several representatives stated recent events could certainly raise the odds of more regulation, not less.

The banks face additional difficulties, too. The Federal Reserve is expected to raise short-term interest rates. Higher interest rates could benefit banks in the short-run as more interest could be collected from loans. But financial firms have been losers amid periods of rising rates in the longer term as loan demand cools.

Yes, challenges loom, but banks are still a key piece of a diversified portfolio, though. Financials account for 14% of the Standard & Poor’s 500 and deliver solid dividend yields.  Diversification allows you to safety own banks.

Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.