Thursday, May 7, 2009

BANKS ARE REBOUNDING?

It is interesting to watch the bank stocks rebound and soar in some cases. Here are a few points to keep in mind. First, the banks are experiencing increasing bad loan losses as evidenced by this Bloomberg piece on Barclays. This is further supported by numerous discussions I have had with major players in the troubled company industry who say that the level of distressed companies is increasing not decreasing.

Second, at some point bank earnings are dependant on leverage. For the foreseeable future leverage will be greatly reduced from just 18 months ago. This means that large banks will be hard pressed to achieve the earnings of just a short time ago.

Third, expect to see goodwill write-offs at banks that have acquired other institutions in the past three years as a result of impairment of asset values.

Just a few points to keep in mind.

Cheers, Mike

2 comments:

  1. Thank you so much for sharing this to us. I ran through some of your posts also and enjoyed reading them. I'm looking forward for more topic soon. Thanks again!

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  2. Thanks for the comment and welcome aboard. Follow us on twitter also.

    Cheers

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