Banks have steadily recovered given that the Lehman Brothers collapse in late 2008 sent the bank sector in a downward spiral that inevitably needed hundreds of billions of bailout infusion from Uncle Sam to save the U.S. bank sector.
In my view, this chaotic event was an opportunity that only seems after in a even though. It was clear in my mind that the U.S. government could not afford to let the main banks fail, as this would have most likely triggered a mass selloff in the U.S. For instance, there was totally no way the government would enable the Bank of America Corporation (NYSE/BAC) or Citigroup, Inc. (NYSE/C) to fail, as it would drive down banking competitors nationwide and this would not be great for competitors and or self-confidence in the U.S. bank sector.
Chaos usually provides opportunity to make some fairly straightforward income. On March five, 2009, you could have bought Citigroup for $ 1.02. The stock recently traded at $ five.15. A purchase of 100,000 shares could have produced you a cool $ 413,000 in less than two years! This is the sort of opportunistic purchasing that often presents itself. It will occur again maybe not in banking but in some sector. You just need to have to be alert and watchful.
I continue to like the progress of the huge banks, but remain concerned with some of the bad stuff on the balance sheets and the government’s new restrictions on banking activities.
The Volcker Rule proposed by economist and ex-Fed Chairman Paul Volcker to restrict some speculative activities will hurt earnings, but it will also strengthen the banks and stop the mess like the one we’ve currently witnessed. Trust me understanding the banks, they will discover approaches to get about this.
The progress of banks is evident early on in the fourth-quarter earnings season.
JP Morgan Chase & Co. (NYSE/JPM) beat on earnings per share (EPS) estimates by six-% revenue growth.
Citigroup failed to meet EPS estimates and fell quick on revenues. The stock had surged to above $ five.ten on heightened expectation right after the sturdy report from JPM. Overall, the final results have been a steady improvement year-over-year, which is what you want to see.
The Bank of New York Mellon Corporation (NYSE/BK) and U.S. Bancorp (NYSE/USB) both reported robust revenues, but mixed earnings.
The Goldman Sachs Group, Inc. (NYSE/GS) reported a 52% year-over-year decline in EPS, but it was in line with estimates. Clearly, this is great timing for these principal Goldman personnel who received billions of dollars in bonuses prior to the fourth-quarter report!
The outcomes from the banks, although enhanced from a year earlier, continued to show some fragility in some places, sufficient to drive traders to take some earnings off the table.
There is speculation that banks will be able to begin to once more spend out dividends sometime this year, which will attract institutional and retail investors.
I view pullbacks as an chance to accumulate shares, as I remain longer-term optimistic on the big banks.
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