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I will be revisiting this in detail after I finish the European
Crisis Series. Practically all of the big and regional banks have
purposefully contracted their loan portfolios and lending activities to
curtail risk. This means that they will be making less interest income.
Normalized (as in less) trading income, less interest income, the Fed
looking (we will see if this actually happens) to stop putting an
artificial bid under the MBS market, housing still in a downturn as
foreclosures/distress sales are still ramping, much tighter regulation, a
bunch of trash on the balance sheets (remember, the cause of this
malaise has never changed) and an increase in price of several hundred
percent for many banks is an elixir for a short seller's ambrosia.
It
may have taken 10 months or so, but believe it or not it appears as if
fundamentals may be returning to the investment game. If so, be aware
that the banks are quite overvalued. Keep in mind that the comp
valuation of many banks have increased because the peer group has risen
so much and so broadly. That doesn't negate the fact that the underlying
balance sheet issues are still there and regulatory and macro headwinds
are quite stiff. I am looking for the peer group valuations to return
to mean, which means a sharp dip in many of the banks that I have
covered. I will attempt to review relevant scenarios in detail for
subscribers.
See...
JPM 4Q09 review
