Financials: This Picture's Worth a Thousand Words

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Includes: FITB, RF, STI, WFC, WMIH, XLF
by: Markham Lee

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.