Bank Stock Euphoria?

Posted by: Ben Steverman on February 4, 2008

Stifel Nicolaus SF analyst Christopher Mutascio warns that bank stocks may be getting ahead of themselves. The analyst of regional banks said Feb. 4 that the banking industry has seen a “nine-day meteoric rally [that is] bordering on euphoric and is occurring at a time when fundamental deterioration is accelerating, not stabilizing or even showing signs of slowing.”
The big move in bank stocks is largely the result of the Federal Reserve’s recent deep cuts in interest rates. Before the cuts, banks seemed to hit bottom and since then they’ve rocketed 25% higher, according to Mutascio’s calculations.
Bank investors argue interest rates can help bank profit margins. That’s true, he says, but what about bank customers ability to repay their bank loans? He warns that credit quality just starting to deteriorate and could get a lot worse. “This faith-based Fed rally seems overdone,” Mutascio wrote.

Reader Comments


April 5, 2008 8:45 PM

as with any ciclycal industry there are usually opportunities at each end of the cycle. in this market the big banks are priced atractively so one can ride the elevator up, as with community banks this sector also offers upside as these banks are safe but feeling the presure of the larger banks. don't miss the start up bank or de novo as its coming to market when the strongest local businesses have survived.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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