Bank Stock Outlook: Will First-Half Gains Give Way to Second-Half Pain?
Posted on July 29th, 2009 in BAC, BB&T Corp, BBT, BK, Bank of America, Bank of New York Mellon, C, COF, Capital One Financial, Citigroup, FTB, Fifth Third, JPM, JPMorgan Chase, PNC, PNC Financial, RF, Regions Financial, STI, STT, State Street Corp., SunTrust, US Bancorp, USB, WFC, Wells Fargo BAC, Bank of America, Bank of New York Mellon, BB&T Corp, BBT, BK, C, Capital One Financial, Citigroup, COF, Fifth Third, FTB, JPM, JPMorgan Chase, PNC, PNC Financial, Regions Financial, RF, State Street Corp., STI, STT, SunTrust, US Bancorp, USB, Wells Fargo, WFC
Can U.S. bank stocks continue their winning streak?
In the following article, the banks are classified into four distinct categories:
1. Zombies: Institutions making persistent losses at an operating level. These subtract value from the economy and should be put out of their misery through controlled liquidation, with the healthy parts being salvaged. They are surviving only because of ill-advised government (taxpayer) largesse.
2. Walking wounded: These may well need another bailout if troubles develop. Right now, however, despite the fact that profits are too low, these banks are currently operating adequately on their own. An intensification of economic downturn would push some of them into “zombie” status or bankruptcy.
3. Risky but Proud: These banks have relatively high risks, because of acquisitions or their business mix, but appear to be overcoming the challenges they face. However, their profitability is poor and may remain so.
4. Hidden gems: These banks have conquered 2008’s difficulties, taken care of their bad-debt problem, and still managed to make a substantial profit. Short of a repeat of 1929-33, they should continue to do so. However, many have seen their stocks soar, meaning their shares are often now overpriced – especially given the likelihood of a prolonged recession still to come.
