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About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Wednesday, May 25, 2011

US Bank Stocks

Talk about a group that has fallen from grace. The bank stock index (^BKX) is no higher now than
it was in late 1997, and is down close to 55% from its all time high near 120 set in 2007. Back then
industry profits were at an annual rate $148 bil. After two years of deep losses, banks turned into
the black in 2010, and are now earning at a $117 billion annual rate. Higher fees have helped the
recovery, but most of the bounce has come from a run down of the reserve for future loan losses.

Since there has been hardly any growth in interest earning assets for a good several years, net
interest margin before loan losses -- the largest profit category by far -- has gone nowhere. But,
with bank capital having turned up, we are starting to see some improvement in total interest
earning assets. This upturn should continue as the economic recovery progresses, allowing for
a significant regeneration of operating earnings.

The recovery of bank earnings so far has badly lagged that of corporate profits, but bank earnings
should compete more strongly with total profits as the economy progresses and lending and
profit spreads increase. As corporate entities, banks are no longer "friendly bankers" and are
now well loathed by the public for the disastrous performance and behavoir of 2007 - 2009.
Moreover, given the often outrageous behavoir of banks and their agents re: real estate, you
can figure the lawsuits will keep on coming. But, the group is cheap and you, dear readers, should
mull it over.


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