Basket of Large Cap US Financials - No Brainer Buy Today?

[John Hjorth]

4 hours ago, Gregmal said:

If everybody is migrating to the TBTF banks, why would they have to increase what they’re paying? Out of all my accounts, Chase is easily the worst in terms of a savings rate.

 

Yes, @Gregmal,

 

In general, formation of oligopolies strenghening of such tends to reduce competition.

[Viking]

So we are now 2 weeks into the current banking crisis. What have we learned? Where are we at? Are the big banks a screaming buy?

 

It looks more and more to me like the big banks will be winners (over time) of the current crisis.
- They are perceived as safer today - so are growing deposits.

- They have diversified earnings streams so they can better weather the current storm. 

- They are already highly regulated (new regulations will likely impact small players more).

- They already have high capital levels.

- Falling interest rates - across the curve - is reducing bond losses in held-to-maturity portfolio (from what was recorded Dec 31).

- Their share prices have fallen to bear market lows:

        - C and WFC are both trading where they traded 10 years ago

        - BAC is trading where it traded 5 years ago

        - even ‘fortress balance sheet’ JPM is trading only 10% above its price of 5 years ago

 

Have all of these banks not earned an enormous amount of money the past 5 and 10 years? Are they all not much better managed today? Have they not invested billions in technology? Have they not solidified their place as global leaders? I am guessing their share count has come down significantly. And their dividend yields are good to very good. 
 

So what is the problem?
- Global contagion? As of today, that looks unlikely. 
- Regulatory (government requiring capital raises)? That looks unnecessary for the big banks.

- Bond losses that have to be realized due to flight of deposits? Their diversified earnings stream makes this unlikely.

 

Clearly the big banks have been a terrible investment for the past 5 years. C and WFC have been terrible investments for the past 10 years. Is the banking model simply broken? Or do we see the big banks lead the market higher for the next 5 years?

Edited March 26, 2023 by Viking

[Valuebo]

Have a look at Market cap instead of share price when looking at historical prices @Viking. For bac thats around 300b then VS 215b now. 

 

But yes, around same stock price but you got a bigger piece of the pie per share. 

Edited March 26, 2023 by Valuebo

[sleepydragon]

2 hours ago, Viking said:

So we are now 2 weeks into the current banking crisis. What have we learned? Where are we at? Are the big banks a screaming buy?

 

It looks more and more to me like the big banks will be winners (over time) of the current crisis.
- They are perceived as safer today - so are growing deposits.

- They have diversified earnings streams so they can better weather the current storm. 

- They are already highly regulated (new regulations will likely impact small players more).

- They already have high capital levels.

- Falling interest rates - across the curve - is reducing bond losses in held-to-maturity portfolio (from what was recorded Dec 31).

- Their share prices have fallen to bear market lows:

        - C and WFC are both trading where they traded 10 years ago

        - BAC is trading where it traded 5 years ago

        - even ‘fortress balance sheet’ JPM is trading only 10% above its price of 5 years ago

 

Have all of these banks not earned an enormous amount of money the past 5 and 10 years? Are they all not much better managed today? Have they not invested billions in technology? Have they not solidified their place as global leaders? I am guessing their share count has come down significantly. And their dividend yields are good to very good. 
 

So what is the problem?
- Global contagion? As of today, that looks unlikely. 
- Regulatory (government requiring capital raises)? That looks unnecessary for the big banks.

- Bond losses that have to be realized due to flight of deposits? Their diversified earnings stream makes this unlikely.

 

Clearly the big banks have been a terrible investment for the past 5 years. C and WFC have been terrible investments for the past 10 years. Is the banking model simply broken? Or do we see the big banks lead the market higher for the next 5 years?

One problem could be they have too much deposit they don’t have enough places to make loans. The deposit is a cost

[Valuebo]

A cost of a few bps with the added benefit that they all feel they don't have to raise rates for customers to compete for these deposits with each other? I'll gladly take it. 

[sleepydragon]

On 3/15/2023 at 8:44 PM, SHDL said:

I'm generally on board with this. I do have some BAC. Some questions:

 

1. GS, MS: Why do you think they will benefit from these events?

 

2. WFC: How do you feel about the asset cap?

 

GS is cheap, I am tempted to buy some, but I couldn’t find sustainable moat of this company. Supposedly they are the smartest among Wall Street banks, always hire smart people, and it used to be that they take risk make a lot very profitable prop trades, that’s what make them unique. but almost every single person I know working there have left. 

[Spooky]

21 hours ago, Viking said:

Is the banking model simply broken?

 

This is an interesting question. It seems like there is so much private capital out there now making loans that can compete with the banking industry. The banks do have an advantage in a sense they can essentially create money through their access to the Fed (but I still don't fully understand how this works in practice).

 

I also don't think the traditional banking model really works when the yield curve is inverted (i.e. borrowing short and lending long).