The Shape of Bank Earnings To Come: U, V, or L?

The latest from Satyajit Das analyzes the question of where bank earnings will likely go from here.  It’s a thoughtful and well reasoned piece.  His conclusion:

“Glamorous banks reliant on “voodoo banking” may find it difficult to achieve the high performance of the “go-go” years.  Banks with sound traditional franchises that have avoided the worst excesses of the last 10-15 years will do well in the changed market environment. Such old fashioned banking may ironically do well in the “new” environment. Interest rates that they charge customers have increased. Bank deposits have become far more attractive than other investments. Stronger banks have also benefited from a “flight to quality”.

Will the recovery in bank stocks take the form of “V” or “U”? It may be a “L”. With the Northern Rock and Bear Stearns bailouts, central banks and governments have signaled that major banks are “too big to fail”. This is a necessary but not sufficient condition for recovery of bank earnings and stock prices. The recovery might take the form of a “L” (Kirsten ITC font) – note the small upturn at the far right of the flat bottom.”

Read the entire article:




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