Bank Stocks

Article Index

Thanks to the Fed, It's All Proceeding According to "The Plan"

If you've been reading the headlines, you know Bank of America Corp. (NYSE:BAC) is in trouble. It could be in really big trouble.

Thank goodness they're so big!

Thank goodness all the big banks in America are all much bigger now than they were a few years ago, before the financial crisis brought them to their knees, by their own doing, of course.

Don't you just love it when a plan comes together?

Yeah, it's all part of "The Plan" to eliminate pesky banking competition.

Let me show you how nicely it's working...

The Fed's 100-Year Plan

The Plan was hatched a long time ago. Back in 1913, as a matter of fact.

That's when Congress devised the Federal Reserve System for eliminating competition and making sure U.S. taxpayers would be the lender of last resort to big bankers.

It has taken a while, 100 years, in fact. But it is working.

The first sign it was working came in the 1980s and '90s, when the savings and loans got into serious trouble playing the greed game.

They weren't covered by the Federal Reserve System. So they were shut down, or rolled up by government-backed insiders (Congress' puppet-masters), and later sold to big banks for sweet profits.

Anyway, they're gone. No more pesky competition from S&L associations.

Now look who's next on the chopping block...

To continue reading, please click here...

Stock Market Today: This Stock's Dip Could Be Promising

The stock market today opened flat as positive housing data was weighed down by somewhat mixed earnings.

Here's our market roundup and one stock that's soaring today.

  • Housing starts reach four-year high- The housing market continues to show signs of recovery as the rate of home building in September grew to levels not seen since July 2008. Housing starts rose to an annual pace of 872,000 homes, up 15% from August. Builders also filed for permits at an annual rate of 894,000 homes, up 11.6% from last month and 45.1% year-over-year. Demand for housing will continue to be helped by the Federal Reserve's pledge to keep interest rates near historic levels and the implementation of QE3. Housing prices have rebounded from their nadirs in part because foreclosures are at five-year lows and because the number of U.S. households grew 2% in 2011, its largest rise in 10 years. "There is going to be a continued housing recovery over the next few years," said Larry Seay, chief financial officer at Meritage Homes Corp. (NYSE: MTH) in Scottsdale, AZ, at an investor conference. "Pent-up demand that has built up from people deferring household formation is going to help buoy the recovery. High affordability not only with house prices being very low, but also interest rates being as low as they've been in decades, and all that translating into an improved buyer confidence."
  • Bank of America Corp (NYSE: BAC) delivers a mixed bag- Charlotte, NC-based Bank of America barley managed to squeeze out a profit for the third quarter after $1.6 billion in litigation charges ate away at its earnings. The financial giant earned $340 million - a little more than zero cents per share. That was better than analysts' average estimate of a loss of 7 cents per share, but well below last year's third-quarter profit of $6.2 billion, or 56 cents per share. Revenue also fell, slumping to $20.4 billion from $28.5 billion a year ago, missing expectations. A day after Citigroup CEO Vikram Pandit abruptly resigned, Bank of America's CEO Brian Moynihan sounded confident about his bank's future. "We are doing more business with our customers and clients, deposits are up, mortgage originations are up," he said. "Our strategy is taking hold even as we work through a challenging economy and continue to clean up legacy issues." BAC stock is up 0.6% in early trading.
Here's one stock that beat earnings and is poised for future success.

Read More…

Even with Wells Fargo (NYSE: WFC), Investors Should Read the Fine Print

For centuries, Wells Fargo (NYSE: WFC) has put its reputation above all else.

The San Francisco-based banking giant appeared to emerge relatively unscathed from the 2008 financial crisis. It was named Most Valuable Bank Brand in the United States and number two worldwide in 2012.

It's even a favorite and primary position in legendary investor Warren Buffett's iconic Berkshire Hathaway (NYSE: BRK.A, BRK.B) portfolio.

It has avoided the reputation of being manipulative, like its rivals - but that doesn't mean investors aren't getting burned.

An article last week from The New York Times showed that investors need to fully understand the risks of their investments, and can't always trust their bank - no matter the reputation - to look out for them.

Turns out investors who purchased an unusual security suffered steep losses, while Wells Fargo came out ahead. The risks, and there were many, were deeply hidden in the prospectus, a wordy and complicated document few investors understood.

To continue reading, please click here...

I Admit It, I Was Wrong About Regulation

Like most people, I hate to admit it when I'm wrong. But today, I admit it.

I have been wrong about regulation. All wrong. I've been calling for more, better regulations to stem the fraud and wicked ways of errant Wall Streeters.

But it's come to light, in a sad and almost tragic way, that this whole regulation thing is wrong from the get-go.

After all, it ruined one poor man's near-perfect life. And that's where I draw the line.

Thanks to a suicide note, penned before (obviously) his attempted mea culpa exit stage left, which thankfully failed, we know why poor Russell Wasendorf Sr. was so distraught.

Yeah, that Russell Wasendorf Sr., the guy who founded and was CEO of failed brokerage house Peregrine Financial, also known as PFGBest.

Well, it turns out poor old Russ actually is poor - "poor," as in he has no more money (still has that jet and a few other little assets, however) - and his firm is being liquidated because of those stupid, useless regulations and those horribly pesky regulators.

According to Russ' suicide note, for almost 20 years, he ripped off his clients by stealing their money to keep his firm afloat so he could continue to service them, his clients, that is... and the regulators.

Now, that's what I call service!

To continue reading, please click here...

To continue reading, please click here...

The Libor Manipulation Scandal Has Been Brewing for Years

The Barclays Libor manipulation scandal is the latest development out of a huge investigation in the global banking industry - one that would have started years earlier, if Money Morning's Shah Gilani was in charge of it.

You see, Libor rates are incredibly important. They're the benchmark, or "reference," rates for hundreds of trillions of dollars in loans.

They are so important that even a 0.10% error or "manipulation" in calculations could impact billions of dollars.

That's why Gilani has been warning Money Morning readers of the risks of Libor manipulation since 2008.

"Gilani was among the earliest proponents of the theory that the contributing banks may have rigged the calculation of LIBOR," wrote Securities industry lawyer and Wall Street regulation critic Bill Singer in 2011. "Gilani warned that such activities were likely antitrust violations and were exposing major international banks to legal liability."

How Libor Manipulation Began

As Gilani explained in October 2008, how banks manipulate Libor isn't an incredibly complex event. That's because loan rate reporting is based on the honor system.

Or dishonor, in some cases.

To continue reading, please click here...

Bank of America (NYSE: BAC) May Never Fully Recover

Bank of America (NYSE: BAC) has been working hard to regain its profitability and stature, but a better-than-expected earnings report isn't enough.

On Thursday the company reported earnings of 3 cents a share. Revenue came in light at $22.28 billion.

Although analysts were looking for 12 cents a share, several weighed in saying that a $4.8 billion charge known as debt valuation adjustment (DVA) complicated the earnings report. Some say BofA actually beat core earnings expectations.

Evercore analyst Andrew Marquardt wrote, "Our initial view of core is closer to 26 cents."

Return on average equity of 11.05% beat fourth-quarter results, but was less than the 15.41% return the bank posted for the first quarter a year ago. BAC succeeded in reducing its credit-loss provisions to $2.42 billion from $3.81 billion in the fourth quarter.

"You had very favorable tailwinds in the fixed-income markets and so trading revenues are very strong for this universe right now," Charles Peabody, an analyst at Portales Partners LLC in New York, said in a Bloomberg Radio interview. "There's no question the earnings that are being reported are very good -- the question is the sustainability."

Despite beating estimates with its first-quarter earnings, BofA has struggled more than its counterparts in the wake of the financial crisis. The damage may be too much to allow the bank to grow to as big as it once was.

Click here to continue reading...

The Banks Win, Again

Finally, some well-deserved help for beleaguered monster banks is on its way.

Make that, well on its way.

Those poor big banks accidently and inadvertently got caught up making so many easy loans to deserving, hard-up borrowers, who wanted to buy overpriced dream homes, and a few million other folks who deserved two homes and McMansions to keep up with the Joneses (you know the Joneses... most of them were "friends of Angelo").

But now, at last, the banks are making profits again.

After suffering the indignity of insolvency and near collapse for all their hard work, the New Samaritans are still being haunted by their generosity, as regulators hound them into settlement submission, merely for doing God's work.

So, what's the good news?

The second quarter may be a good one for the three biggest servicer banks, namely Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and - the little bank that could, run by that kid named Jamie - JPMorgan Chase (NYSE:JPM).

What's strange is that these do-gooders are being helped by some of the same government folks who are still attacking them in public venues where voters hang their hats.

What's not strange is that tons of underwater homebuyers, who are drowning in debt on dwellings whose prices have fallen 30% to 40%, aren't blaming banks and are running to their rescue.

Okay, maybe they're not running, maybe it's more that they're being corralled, like sheep. But either way, they are helping banks fatten their profits pools (make that bonus pools) again.

They're repaying the banks' favor of giving them loans in the first place by coming (more like being forced) back to the banks to get refinanced on better terms.

But they're not doing it on their own. The banks have a partner helping to round up their old customers and corral them into the breeding profits barn.

That Partner is HARP 2.0

The original Home Affordable Refinance Program, which was launched in April 2009, failed miserably (because there was nothing in it for banks). But the powers that be (the banks... DUH) harped for a new HARP, and they got it last November.

The new program is known as HARP 2.0 (that's because it's twice as profitable for the big banks that sunk the economy and the world under Housing Bubblemania 1.0).

Okay, enough sarcasm; let me slice and dice this succinctly for you.

Click here to continue reading...

Robo-Signing is the Tip of the Iceberg for the Banks

What may be good news for delinquent credit card holders may also be really bad news for banks.

It turns out the "robo-signing" of foreclosure affidavits is just the tip of the iceberg.

In what one judge called "robo-testimony," falsely attested-to statements by bank document custodians have been submitted in courts around the country by banks trying to win judgments against delinquent credit card debtors.

Apparently, tens of millions of credit cards issued by banks have not been accompanied by good recordkeeping, either.

Chasing down delinquent borrowers in court requires original credit agreements and accurate payment histories to verify outstanding balances and claims.

As it turns out, banks aren't providing them - either to the courts or to third-party debt collection companies that buy uncollected debts for pennies on the dollar.

As a result of these shoddy practices, judgments already granted to banks could be overturned and they could be sued by state attorney generals or pursued by the Consumer Financial Protection Bureau.

The same banks could even be potentially charged by the Justice Department under the Racketeer Influenced and Corrupt Organizations (RICO) Statutes for selling dubiously documented accounts to debt collection companies.

While some debtors will take comfort in what they read here, investors in banks may want to question how legal issues and regulatory investigations will impact their stocks.

To continue reading, please click here...

JPMorgan Chase (NYSE: JPM) Earnings: Don't Be Misled by Sagging Banking Sector

As the grim bank earnings roll in over the next couple of weeks, beginning with JPMorgan Chase & Co. (NYSE: JPM) tomorrow (Friday) morning, don't fall into the trap of thinking the financial sector's woes in the last quarter reflect a sinking U.S. economy.

While bank earnings are usually a good barometer for the nation's economy, many of the factors weighing down financials, such as tougher regulations and the Eurozone debt crisis, aren't necessarily a reflection on U.S. economic activity.

In fact, according to the U.S. Federal Reserve's Beige Book report, released Wednesday, the overall economy at the end of last year continued to improve slowly but steadily.

Friday the 13th for the Financials

Analysts have been consistently lowering earnings expectations for all the big banks in recent weeks.

"Friday the 13th will live up to its name when it comes to bank earnings," Mike Mayo, an analyst with independent research firm CLSA in New York, told Bloomberg News. "You're going to see all sorts of revenue and margin pressure and the results will be underwhelming."

The consensus estimate for JPMorgan, the nation's biggest bank by assets and a bellwether for the industry, has slid from $0.97 per share to $0.94 per share in the past month; three months ago the estimate was $1.11 per share.

That puts JPMorgan's earnings below the $1.02 per share of the previous quarter and well below the $1.13 of the year-ago quarter. JPMorgan's revenue is expected to drop 20.8% from first-quarter 2011.

And as disappointing as that sounds, JP Morgan will be one of the strongest performers this bleak bank earnings season, which follows a year in which some bank stocks fell more than 40%.

As the other major U.S. banks report earnings next week - Citigroup Inc. (NYSE: C) and Wells Fargo & Company (NYSE: WFC) on Tuesday, Goldman Sachs Group Inc. (NYSE: GS) on Wednesday and Bank of America Corp. (NYSE: BAC) and Morgan Stanley (NYSE: MS) on Thursday -- the din of negativity will be hard to ignore.

To continue reading, please click here…

Read More…

What I Learned From My Lunch with Vikram Pandit

I've long been bearish on bank stocks and financials - but something happened last week that made me rethink my position.

I was having lunch with Citigroup Inc. (NYSE: C) Chief Executive Officer Vikram Pandit, and he had some interesting points.

According to Mr. Pandit, providing money and financial services to business is still a pretty attractive undertaking on a global scale.

Of course, he was also quick to mention that top quality risk controls and much higher liquidity are absolute necessities.

"Banks need to realize they are in a new reality," he said.

He couldn't be more right.

I warned you back in August that bank stocks were headed for a "catastrophic decline," and that proved to be true.

Since that article's Aug. 17 publication, Bank of America Corp. (NYSE: BAC) has tumbled 12.7%, Goldman Sachs Group Inc. (NYSE: GS) fell 9.9%, JPMorgan Chase & Co. (NYSE: JPM) is down 5.5%, and Morgan Stanley (NYSE: MS) is down 2.1%.

In fact, the MSCI US Investable Financials index is down 12.6% on the year and has achieved a less-than-stellar return of -12.6% per annum over the last five years.

And it's not hard to see why.

Third-quarter bank earnings were mediocre at best, and some of the special protections offered to banks are being wound down. Additionally, banks are in popular odium and demonstrations against them are erupting in every major U.S. city. And the effects of increased regulation are yet to come fully into view.

Still, for the first time since the stock price "bounce" of 2009, bank stocks are beginning to look somewhat attractive and the time to start bottom fishing may be at hand.

Banks Worth Buying

For those few banks with genuine global networks, international banking remains on a growth curve as globalization intensifies and more emerging market companies diversify outside their own country and region. Domestically, retail banking remains a good business. Credit card losses are beginning to decline while spreads remain at record levels.

Consequently, there are very good bargain-buying opportunities at large.

Remember, though, that any investment should be made gradually over time, because while the chances of a repeat of 2008 are remote -- at least in the United States -- there is still a great deal of risk and uncertainty in the banking sector.

You should avoid banks with large exposures to problems of the past. That means staying away from Bank of America and Wells Fargo & Co. (NYSE: WFC). Both of these banks remain heavily exposed to West Coast real estate, and in BofA's case, to the mortgage-backed securities disaster, as well.

However, the following financial firms are worth looking at:

To continue reading, please click here...

We Warned You Not to Buy Bank Stocks - And Here's Why

If you weren't convinced before, hopefully you've seen the light now: Don't buy bank stocks.

Money Morning Global Investing Strategist Martin Hutchinson first warned it was time to bail on bank stocks on Aug. 17. He said the sector was headed for a "catastrophic decline."

"Margins are narrowing, government regulation is increasing, and the outlook for big deals is drying up," said Hutchinson. "In other words: The risks related to bank stocks are as present as they ever were - just the profitability is missing."

Hutchinson was right on with his call. Anyone who heeded his warning saved themselves from the losses U.S. banks have since sustained.

Share prices for many big U.S. banks tumbled in the period between the publication of Hutchinson's article and yesterday's (Wednesday's) market close. Bank of America Corp. (NYSE: BAC) lost 11.6%, Goldman Sachs Group Inc. (NYSE: GS) fell 9.3%, JPMorgan Chase & Co. (NYSE: JPM) 6.5%, and Morgan Stanley (NYSE: MS) 2.2%.

The Standard & Poor's Financials Sector Index now is down more than 18% for the year. Global bank stocks have hit their lowest valuation in 40 years.

And this industry's stock losses are just the beginning of the price pain.

Poor Earnings Reflect Banks' Struggle

Hutchinson pointed to key factors that would weigh on bank profits, like trading losses, decreased lending, and the overhang of dead mortgages.

This season's dismal bank earnings have supported Hutchinson's forecast.

To continue reading, please click here...

Bank Stocks Are Bad Investments - But Excellent Trading Opportunities

Long gone are the days when bank stocks were safe investments. Now, and for the foreseeable future, the only safe way to play banks and financials is by trading them.

Banks face so many issues, both in the near term and on a long-term secular basis, that putting shares away, even now when they look cheap, could be hazardous to your wealth and your mental state.

On the other hand, precisely because many of the headwinds banks face are obvious, closely following the developments affecting banks can lead to profitable trading opportunities. And, by familiarizing yourself with how bank stocks trade, you'll be in an excellent position to determine exactly when they've become good long-term holds.

As a trader, I'm always looking for sectors and stocks where developments affecting earnings and profitability are mainstream news. It means I don't have to mine mountains of arcane data to get the big picture. And right now, all the news coming out about banks makes them ripe for trading.

Here's what I look at and how I would trade bank stocks.

Banking on Volatility

The first thing I see when I'm looking at banks is that most of them have been exceptionally volatile. Volatility is the lifeblood of trading. They've definitely got that going for them.

The most common measure of an individual stock's volatility is how it compares to the volatility of the market as a whole. Beta measures how volatile a stock is relative to the Standard & Poor's 500 Index. A beta of "1" means that the stock is as volatile as the market. A beta of "2" means the stock is twice as volatile as the market.

Here are some betas for bank stocks you should consider as good trading candidates: Bank of America Corp.'s (NYSE: BAC) beta is 2.76; Citigroup Inc.'s (NYSE: C) is 2.89; Wells Fargo & Co. (NYSE: WFC) 1.78; Morgan Stanley's (NYSE: MS) is 1.10; JPMorgan Chase & Co.'s (NYSE: JPM) is 1.43; and Goldman Sachs Group Inc.'s (NYSE: GS) is 1.26.

There are many very volatile European banks to trade, too. But these are even riskier. Personally, I don't like unanticipated volatility. I like to understand what is happening, what developments are ebbing and flowing to generate volatility.

With the banks, there's a fairly long list of negative headwinds, which is where their e mbedded volatility comes from.

Big Questions For Bank Stocks

U.S. banks, and even more-so their European counterparts, are facing some very big issues. Each hurdle is big in and of itself, and collectively they form a tremendous weight on the sector.

The biggest question marks are:

To continue reading, please click here...