While discussing JPMorgan’s (NYSE:JPM) recent trading debacle with CNBC, Meredith Whitney of Meredith Whitney Advisory Group stated some key points as to why she sees zero movement in bank stocks.
1) Bank stocks have “no business trading above tangible book.”
2) Lower loan-to-deposit ratios have banks using deposits to buy riskier assets.
3) Things are not going to be easy for this industry (regulatory concerns).
Meredith added, "I think investors feel some idea that they have to own the banks because it's a key principle and a key foundation of their portfolio, that the market can't move without the big banks,but the banking industry is changing into such a fundamental structural way that you have to look at financials entirely different.”
Additionally, in an April 25 CNBC interview, she explained how banks were boosting their earnings by selling riskier assets and buying government secured assets. This gives the bank the ability to draw down their loan loss reserves, thus boosting earnings. I had discussed this briefly in my January 2012 article, “Are Regional Banks Free from European Exposure?”
She also stated,"The big banks are kind of zombie-like, treading along, not that interesting," she said. "Some of the regional banks, some of the large regional banks is where the real action is on the downside."
You can find both videos on CNBC.com A general way to make this trade would be to use the KRS - Short KBW Regional Banking ETF or sell any regional stocks you may own.
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