Subprime Borrower

Financial Stocks' Future Earnings Estimates: Is This a Joke?

The investment banks will be fine, forecasts on their earnings are reasonable considering the love and caring they're getting from the central bank. Let's face it, if any of the big i-banks were allowed to go bust the global financial system would collapse, sending the world economy into depression. The worst that will happen is MER or UBS will be gobbled up by GS.

The real concern in this cycle is commercial banking and credit cards; the market doesn't full appreciate the very scary situation they're in. Take Capital One (COF) for example. They're trading 25% above target despite heavy delinquency rates, charge-offs, rising unemployment, etc. Barron's sums up their situation nicely:

"The problem for Capital One, though: the Fed hasn't
done anything to change the bank's fundamentals. The central bank has been remedying the problems of broker/dealers and the holders of deteriorating mortgage products, not credit-card lenders. Instead, the problems associated with that part of the banking system - the
reticence of the strapped consumer, as well as the rise in delinquiencies - haven't been redressed. Friedman Billings Ramsey said Tuesday that the run has left the stock over-valued."