Take a Long-Term View on Banks

Banks are a good long-term investment, but in the short and probably medium term fears of further writedowns will still send shockwaves through the market, analysts said on Tuesday.

Credit Suisse provided the latest evidence that investors are spooked even by good news from banks. The company's shares slipped although it reduced total writedowns caused by the subprime crisis.

A year after the first subprime writedown by HSBC, the main problem is that investors still don't know when the meltdown will end.

"There are going to be further falls in the banking market, then there is going to be a furious rally," Roger Nightingale, a strategist at Pointon York, told "Power Lunch Europe."

Investors are worried that although Credit Suisse's message was that it came out of the crisis better than its rivals, it did not say that writedowns were only a 2007 problem.

Another problem for banks is that although they can show that they have hedged exposure to the subprime crisis, they can't show where they will get new business. The structured finance and investment banking sectors, from which many financial institutions were getting revenue, are dropping sharply, analysts said.

Uneasy Insurers

Market jitters have also been sparked by the announcement Monday by the world's largest insurer, AIG , that the value of some of its risky debt portfolio had plunged by $5.96 billion, not $1.6 billion as it reported earlier.

This had a knock-on effect on shares of Dutch bank ING, which fell by as much as 6 percent on market speculation that it will announce further writedowns of up to $8 billion because of its U.S. real estate business. ING declined to comment on market speculation.

ING shares are likely to remain volatile, at least until the bank reports results on February 20.

"People don't know what's happening," Clem Chambers, CEO at ADVFN, told "Power Lunch Europe".

The European insurance sector spent the whole morning in the red following the AIG announcement and the speculation about ING, although it later recovered, and analysts predicted more volatility.

It is difficult to say when the banking sector, which lost around 40 percent of its value in the past six months, will rebound. But now may be the time to buy with a long-term view, some analysts said.

"The fundamentals of the banking sector are great," Chambers said. "They're going to be around in ten years, and their stocks will rise again."

© 2009 CNBC.com