Yearly Archives: 2011

Will Banks Rise in 2012? History Strongly Suggests Yes

2011 was a year the U.S. banks would like to forget. Stocks declined 24.6%, underperforming the S&P 500 by the same amount (SPX ended the year unchanged). This was the fifth worst result since 1937 (i.e., the first year of available return data). It also marked the 7th year out of the last 8 in which the banks underperformed (and it would have been 8 of 8, except the banks rose over 15% in December 2010). This is highly noteworthy since the banks have outperformed almost exactly half the time in the last 74 years. And 2011 was the worst result for bank stocks in a year in which credit losses declined. (Sources: Barclays, FDIC, HCP.) Read More»

That Was Then, This is Now: Comparing the European Debt Crisis to the Credit Crisis (Globe and Mail)

Europe’s current sovereign debt crisis bears many similarities to the recent U.S. Credit Crisis. Both crises involve(d) two roughly $14 trillion dollar economies weakened under the weight of too much leverage, particularly within the financial system. Both have seen central bankers provide unprecedented monetary accommodation as they struggle for ways to support economic growth. What’s more, bank stocks have acted in both cases as a daily barometer of investor confidence. Click to Download»

The Myths (and Realities) of U.S. Banking

Bank reporting season for the first quarter of 2011 is now essentially over. As we were summarizing this quarter’s aggregate results, we thought it would be interesting to discuss some significant myths in U.S. banking. Namely, we will discuss:

Myth #1: U.S. Banks Continue to Struggle
Myth #2: The U.S. Banking Business Model is Broken
Myth #3: Bank Analyst Estimates are Relevant During a Credit Cycle
Myth #4: Banks are Fragile, and Vulnerable to Another Crisis
Myth #5: Current Earnings are of Low Quality

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Why Credit Creation Will Return

Negative loan growth is a very important issue since many believe only when the “banks start lending again” will the U.S. economy recover.

Each week, the Federal Reserve releases its H.8 report detailing the assets and liabilities for the U.S. commercial banks. Although the weekly change in total loans may swing positive or negative, this report (excluding the impact of an accounting change in March 2010) has shown a clear negative trend in loan growth since 2008. During the recent downturn, various critics of the sector used this data to draw conclusions ranging from the extreme (“the banking system is broken”), to the misleading (“the banks are not lending”). Read More»

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