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Buyers of the New Bank Shares Could Become Dead Ducks

|Includes: BAC, Citigroup Inc. (C), WFC
Feed the ducks when they’re quacking. That’s the refrain I heard endlessly on the trading floor at my alma mater, Morgan Stanley. If the clients want something, give it to them in spades, whether it makes any sense or not. So the sky must be darkened with uncountable flocks of our flying friends when I see two of the biggest equity issues in history in the same week, $25 billion for Bank of America (NYSE:BAC) and $20 billion for Citigroup (NYSE:C). Besides diluting the daylights out of the existing shareholders, the great problem I have with these issues is the terrible fundamentals that still bedevil the industry. You know these guys are engaging in blatant window dressing to get this paper out the door, extending and pretending until their noses grow to Uzbekistan. Their willing co-conspirator is the Federal Reserve’s Ben Bernanke, who used the almighty weapon of zero interest rates to engineer one of the greatest stock rallies in history to get bank shares off the floor. Revenue quality is terrible, earnings visibility is nonexistent, home foreclosures are still accelerating, and commercial defaults may not crest for another three years. You know whatever capital they are raising now will be consumed by write offs next year, and more capital raisings will have to follow. Napoleon’s 1812 retreat from Moscow comes to mind. If someone is pointing a gun at your head forcing you to buy bank shares on pain of death, only look at the small ones, like Hudson City Savings (NASDAQ:HCBK), Westamerica (NASDAQ:WABC), and Bank of Hawaii (NYSE:BOH). Given the dreadful fundamentals, you’d think traders would be flooding to the leveraged short financials ETF (NYSEARCA:SKF) by now, which is down a humbling 92% from its high. You can still buy it for a hat size, which is ironically, where the bank shares themselves were trading in March. With the stock market possible at the top of a multiyear range, I’m afraid that the investors in these big issues will end up as dead ducks.