Financials: This Picture's Worth a Thousand Words

A picture is worth 1,000 words - and this picture sums up some of the pain facing the financial industry:

 

Graphic courtesy of Wall St. Journal

On aggregate, the loan loss provisions rose by 1,453%, and the YoY profit swing (towards the red) totals 16.3 billion. While shares of some of these companies have risen on the belief that they've finally hit bottom I still think it's too early to pour money back into them because their core problems haven't been completely dealt with; let's not forget that many of these banks are still leaking money like sieves and need to raise additional capital.

Furthermore, foreclosures and mortgage defaults are still rising, housing isn't likely to recover until '10, the banks haven't exactly been transparent around their mortgage exposure and many are using the situation to inflate their balance sheets with paper profits.
 
Not to mention the fact that some of the banks people are pouring money into are on "list" of banks that could come close to failing, and/or need to sell themselves to avoid disaster.
 
In my opinion: "it's so bad right now that it must be the bottom" isn't a valid investment strategy, in fact it’s the kind of thinking could've lead one to invest money in Indy Mac a few weeks ago. Not to mention the fact that people have been calling bottoms in financials for well over a year now, only for the shares to plunging lower as more and more bad news is revealed.
 
Considering everything I’m going to stay away from financials (outside of few notable exceptions) until early ’09.
 
You can read the article on banking that the graphic comes from here. It discusses how banking stocks have "surged" despite the recent rash of bad news.
 
Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article.

Comments

[EE:]

yep....buy puts & physical silver>

2008 Jul 25 05:47 AM

[John Pseudonym:]

Jim Rodgers said over 1 year ago that financial stocks (the ones the survive) will all be around $8 per share before the bottom is in.

He said this when the were all at record levels!

Now those that are still living are looking at sub $10 pricing...

I will buy when the prices fall below $10 as banks are not a fad; the good ones will be here forever.

2008 Jul 25 10:23 AM

[jimmysays:]

Let em bleed some more. When there's blood in the street, buy real estate. hallcountyforeclosure....

2008 Jul 25 01:11 PM

[Silke:]

Steele's plan to conserve cash (ie...cut all expenses that do not have a direct benefit to one of the core three "banking" businesses) for the remainder of 08, is the crux of the company not having to raise capitol to cover markets.

If the core banking businesses can continue to grow at 12 percent a year (building deposits -retail, getting rid of commercial loan only customers - commercial, and growing the wealth mgmt business) then they can dilute the biggest part of the mortgage loans this year and be on top of their expenses and building back the core banking businesses by the end of Q1 for 2009.

Steele knows that this would position them to A) claim to the street that they have weathered the storm and a higher multiple on valuation is warranted B) be positioned when the higher valuation comes in Q2, to then raise the capitol needed to become a growth company again, and C) get to the higher valuation and/or begin courting international suitors (sell company or partner out a 1/3 share of the company) D) deem the company better off independent and begin raising the dividend to levels competing with banks that have weathered the storm.

Yes, I am bullish on the mid-level banks in the long term (36 mos) and will be adding to my portfolio during the major sell offs (under 12.00) and selling the run ups (17.00+) for the next three quarters.

Up a 151 percent dealing in financials both of the last two quarters by knowing the implications of the macro events, while applying them to the market psychology of the short term.

Reshuffle and deal 'em again!

2008 Jul 25 05:39 PM

[CC Sherrill...:]

Logic and common sense dictates that Fannie Mae and Freddie Mack are a farce
and that the congressmen and senators who created and support these hybrid
corporate creatures should be personally responsible for the financial deficits
that have and will continue to grow and multiply to sums incomprehensible and
will constitute the major portion of our national debt which like pi is never ending.
Every day will be a sad day in the USA from now through eternity from a $
standpoint. Our only near hope is T. Boone Pickens in the White House.
CC Sherrill Lenoir, NC. 828 758 1688 [e-mail]

2008 Jul 25 10:58 PM

[Ames Tiedeman:]

...And it will be getting worse.

2008 Jul 29 07:15 AM