Thursday, January 22, 2009

Bank stocks

It is a terrible time for bank stock investors. Every individual bank problem reverberates throughout the sector.

The government takes a schizophrenic approach to the industry by injecting capital and assuming that banks will be able to lend while at the same time being rigid about capital levels and criticizing the banks for past lending practices. I hate to use cliches, but "between a rock and a hard place" comes to mind. Without functioning global securitization markets banks have minimal ability to lend at levels even close to the recent past. The business model has changed.

The high dividend yields for bank stocks are either indicative of cuts to come or dire stress that can be worked through. Could they be amazingly attractive with JPM at 8.4%, WFC at 9.6%, USB at 11.1%, WBS at 18.5%, BAC at 25%, STI at 14.3%, and BBT at10.2%. Yields like this are not available on most securities in the general capital markets and with hope for stock price appreciation as well they must be looked at. Unfortunately it seems almost impossible to buy a bank stock at the moment.

There must be more interesting mergers or asset sales in the works that make any analysis difficult, as if any analysis isn't almost impossible already in these markets. I would certainly like to have the guts to buy some of these "bargains" but I don't. Now is just not the time I think, which may well mean that a bottom has been reached.


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