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In their bearish take on big banks, Nouriel Roubini and Meredith Whitney are overlooking the...

In their bearish take on big banks, Nouriel Roubini and Meredith Whitney are overlooking the fact that bank stocks are still undervalued, Thomas Brown says. The stocks trade for 1.3 times book vs. a post-1993 average of 2; "If I’m right and earnings are continuing a recovery, then the valuations of these companies will continue to recover." (ETF: KBE)
Comments (12)
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    "1.3 times book value" means very little when we all know that the banks are stuffed with bad assets that will eventually penalize earnings and REDUCE that book value.
    27 May 2010, 12:52 PM Reply Like
  • elliotz
    , contributor
    Comments (251) | Send Message
     
    While I am not a huge fan on big banks(with the exception of GS and JPM), you are right that their balance sheets disclose only historical costs in terms of assets but the footnotes do disclose mark to market accounting for those assets. For now thanks to the Fed banks are able to make easy money for the foreseeable future. As long as credit metrics do not to begin to deteriorate again Brown might be right in terms of valuation recovery for bank stocks. I would be careful with any bank that is holding to much emerging market debt and the uncertainty coming from congress is another huge question mark for banks. For me there are just to many uncertainties in regards to banks at this moment so I would no be a buyer.
    27 May 2010, 01:22 PM Reply Like
  • The_Hammer
    , contributor
    Comments (3810) | Send Message
     
    Tom was the same guy who held sub-prime lenders before the collapse. Why should these insititutions be trading at past bvs over 2 times?
    Less leverage now and more regulation. a bank is a commodity business so profits should start to fall once the phoney govt stimulus schemes are gone. Unfortunately the schemes will not stop until the markets force them to stop. Bernanke the mad printing fool will not stop until he is forced to.
    27 May 2010, 12:58 PM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    Mr. Brown is a shill for the industry.

     

    Whitney and Roubini are not. They're more objective, and probably more correct.
    27 May 2010, 01:45 PM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    1) Nobody knows what these banks hold.
    2) What is so magical about 2? The world may be very different from 1993-2007 in the future.
    27 May 2010, 01:04 PM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    "2" is the "status quo ante," which looks good to Tom Brown today.

     

    But Paul Nelson, below, has the real number:

     

    "Nobody knows the true book value of these banks and that is a big problem when trying to invest in the sector."

     

    Thumbs up, Paul.
    27 May 2010, 05:43 PM Reply Like
  • Paul Nelson
    , contributor
    Comments (225) | Send Message
     
    Nobody knows the true book value of these banks and that is a big problem when trying to invest in the sector.
    27 May 2010, 01:10 PM Reply Like
  • vtorch
    , contributor
    Comments (288) | Send Message
     
    Don't know who Brown is but he sure sounds richer than Whitney and Roubini. Not to say that wealth is a source of integrity, but in the game of finance, the person that makes the most dough is probably right more often than the person who doesn't.

     

    Whitney is a one-trick pony that will probably fade into the sunset in a couple of years, and Roubini is an economist, not a security analyst. He should stay with economics instead of trying to predict stock market movements and stock prices.
    27 May 2010, 01:19 PM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    "...but in the game of finance, the person that makes the most dough is probably right more often than the person who doesn't...."

     

    I don't know who vtorch is but he doesn't sound very smart. This is one of the more stupid things I have heard in a while. Not even those who made millions by "managing" sup-prime CDOs think they are good rather than lucky.

     

    I bet you think lottery winners are incredibly smart.
    27 May 2010, 02:11 PM Reply Like
  • nightfly
    , contributor
    Comments (1017) | Send Message
     
    Yep, numbers are meaningless when based on fallacy.
    27 May 2010, 01:19 PM Reply Like
  • CBTeas
    , contributor
    Comments (54) | Send Message
     
    Bank BVs and PEs are meaningless in an environment of zero cost funds. These zero cost funds are also supporting unrealistic valuations for all the real estate trash still sitting on the bank books.

     

    A lot more equity will need to be raised, as real estate reality comes into focus. So I for one, do not think these BVs are a good reason for buying. This has turned into the value investors' falling prey for value traps.
    27 May 2010, 01:51 PM Reply Like
  • mannettino
    , contributor
    Comments (1065) | Send Message
     
    I just can't get past all the chatter about the Financials that doesn't take in to account the impending "reform" legislation. As O'Reilly says, "I'm a simple man", and I just boil it down to this:
    It's not a question of "if", it's a question of "how much" of the FI's profit pool will be poached away by the regime. There simply is no other choice. They have deficits & debt spiraling out of control, and they won't cut spending until its too late. Tax revenues are falling, and the inevitable tax increases "on the wealthy" will have the same effect it always has: it will reduce tax income. So they will do the only thing they know how: take as much away from the private sector as we silly citizens let them get away with.
    27 May 2010, 05:42 PM Reply Like
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