Banking on a Rebound?

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Includes: BAC, BCS, C, CS, DB, GS, HSBC, JPM, MS, UBS
by: Paul Price
Bloomberg Businessweek showed an interesting chart today of the change in earnings of 10 large banks from the boom year 2006 versus the same company’s 2010 estimate.

Here are their respective share price performances from YE 2005 right through September 20, 2010:
Company
12/31/2005
09/20/2010
Stock % Change
Profit % Change
JP Morgan (NYSE:JPM)
$39.69
$39.10
(1.48%)
+21%
Goldman Sachs (NYSE:GS)
$127.71
$144.91
+13.47%
-6%
HSBC (HBC)
$80.47
$51.75
(35.69%)
-18%
Credit Suisse (NYSE:CS)
$50.95
$43.51
(14.60%)
-24%
Deutsche Bank (NYSE:DB)
$96.87
$59.79
(38.28%)
-42%
Barclays (NYSE:BCS)
$42.08
$19.00
(54.85%)
-43%
Morgan Stanley (NYSE:MS)
$56.74
$26.06
(54.07%)
-51%
UBS (NYSE:UBS)
$95.15
$17.39
(81.72%)
-62%
Bank of Amer. (NYSE:BAC)
$46.15
$13.17
(71.46%)
-68%
Citigroup (NYSE:C)
$50.95
$3.80
(92.54%)
-89%
As a group the shares behaved pretty rationally with the exception of the top three. JPM showed a 21% profit gain while dropping 1.48% in share price. GS saw a 6% decline in EPS while the shares rose 13.5%. HSBC’s share price dropped twice as much as their earnings over the full period.
Strictly based on the historical data it would seem that JPM and HSBC might offer good risk/reward propositions due to mispricing versus the actual results.

Disclosure: Long GS and MS and short GS and MS options.