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European bank


finetrader
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Maybe it's too soon, maybe it's too risky...

but European banks like Banco Santander, Societe Generale, BNP Paribas, and the Euro have lost a lot of market value lately.

ex. STD(ADR) have lost 45% ytd

 

I am no expert in analyzing the banking business, but I know that those banks have a lot of loans to countries like Greece, Spain...

 

I also know that you can make good money when you do banking and you can borrow at historical low rates.

 

Anyway, I would be interested to hear commentaries about it..

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IMO, it is very early to look there. We know that there was a huge housing bubble in Spain and it has not really popped like in the U.S. and that unemployment is running around 20%. The cycle takes a long time to unfold as we have seen in the U.S.

 

Actually, the housing bubble has not really popped in any country other than in the U.S.: Canada, England, China, etc. You still find that mentality that housing prices can only go up. It is kind of amazing to me that only in the U.S. has housing returned to affordable level relative to income after this huge crisis. The absence of massive securitization, LIAR loans, etc. may have retarded the pop in these countries. I suspect that it will take more unemployment, higher interest rates or a combination of both to cool housing prices. Do you imagine the impact of a global housing pop? I am afraid that this may be lurking on the horizon.

 

If you are looking for a cheap bank, I would recommend Citigroup. At least, it has been recapitalized, massive loan loss reserves have been built-in and its main market has seen its housing adjustment. You could also argue that the U.S. is growing while Europe is entering a slowdown.

 

It is actually amazing to look at the transformation at C. Among the large U.S. banks (JPM,BAC,WFC) and even add USB to compare with a higher quality player, you will now find top Tier 1 ratios, the best tangible equity/asset ratio and highest pre-tax Q1 margin. Only USB can compete with them on Q1 ROE and Q1 ROA. I should also mention that both capital and return ratios are after absorbing massive loan loss reserves. Of course, this improvement came with massive share dilution since 07, but the current P/E at 6-7 times and relative discount with the other players is simply too much.

 

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If you are looking for a cheap bank, I would recommend Citigroup. At least, it has been recapitalized, massive loan loss reserves have been built-in and its main market has seen its housing adjustment. You could also argue that the U.S. is growing while Europe is entering a slowdown.

 

I thought the US was only 25% of their business. 

 

From what I understand, one of the exciting things about Citigroup is that 50% of their business is done in the "emerging markets".  So there is growth potential in excess of what the other large US banks may enjoy. 

 

I think they are making most of their investments for future growth outside of the US -- I saw some Pandit video where he was talking about this.

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