GO
Loading...

Doug Kass: JPMorgan Strength Not a Bull Sign for Banks

Again banks landed in the spotlight after JPMorgan earnings renewed chatter about the sector being seriously cheap.

Specifically, results from our nation’s second largest bank showed higher-than-expected profit as the bank wrote off fewer bad mortgages and credit card loans.

Optimism was further buoyed after JPMorgan said it made new loans faster than customers paid off existing ones during the quarter, a good sign for a business long plagued by weak loan demand. And on top of all that, JPMorgan added staff in the quarter, a move investors interpreted as expectations that business activity would continue to pick-up.

But if you’re among those investors who think JPMorgan results transforms the landscape of the sector -- from a value trap to a value trade – strategic investor Doug Kass has a bridge to sell you.

The president of Seabreeze Partners and CNBC contributor thinks JPMorgan results are little more than a one day event.

“The problems for banks is far more deep rooted than the near term profit picture of JPMorgan or any other bank,” he says. “The problems facing the sector are both structural and secular.”

If you watch Fast Money regularly, you know that Kass understands valuations appear to be compelling – but he argues upside is very limited for years to come, largely because big banks are facing way too many headwinds.

In the past he’s pointed to:

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

- Basel 3 higher capital requirements
- Little understanding of all the new government regulation over the sector.
- The anemic housing market and related mortgage demand
- Screwflation a term Kass coined to describe the pinch average Americans are currently facing.

And on Thursday he expressed concern about yet another headwind.

Quantitative easing and zero interest rates are a big negative for the banks. This is an industry that has an imbalance of rate sensitive earning assets over rate sensitive liabilities. Low interest rates further delay the return to normalized profits.”

And that leads to the billion dollar question – how do you trade? Don't sell short. Kass simply says stay away from the big banks. However he does think there’s opportunity elsewhere in the sector.

”Investors would be well served to buy the life insurance companies that don’t have legacy problems nor the scorn, nor the regulatory issues (facing the big banks.”

Two weeks ago he told us in the space his favorite names were Lincoln National , Hartford , MetLife and Prudential .

What do you think? We want to know!





______________________________________________________
Got something to to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap. If you'd prefer to make a comment, but not have it published on our Web site, send those e-mails to fastmoney@cnbc.com.


Trader disclosure: On July 11, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Terranova owns (XOM); Terranova owns (HAS); Terranova owns (DIS); Terranova owns (WFM); Terranova owns (LULU); Terranova owns (MSFT); Terranova owns (TM); Terranova owns (JWN); Terranova owns (MCD); Terranova owns (PEP); Terranova owns (MA); Terranova owns (BX); Terranova owns (GS); Terranova owns (DAR); Terranova owns (CAT); Terranova owns (VRTS); Terranova owns (AAPL); Terranova owns (F); Terranova owns (CVI); Terranova owns (IBM); Terranova owns (FCX); Terranova is Chief Market Strategist of Virtus Investment Partners, LTD; Finerman's Firm And Finerman Own (AAPL); Finerman's Firm owns (BAC) leaps and Finerman Owns (BAC); Finerman's Firm owns (JPM) leaps and Finerman Owns (JPM); Finerman’s Firm owns (GOOG); Finerman’s owns (IBM); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (MDY); Finerman's Firm Is Short (SPY); Finerman's Firm Is Long S&P 500 Puts; Finerman's Firm Is Long Russell 2000 Puts; Weiss owns (JPM); Weiss owns (HBAN); Weiss owns (CMA); Weiss owns (KEY); Weiss owns (COP); Weiss owns (DVN); Weiss owns (HK)

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of Building Materials Holdings
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LHO)
Virtus Investment Partners Owns More Than 1% Of (NRCI)
Virtus Investment Partners Owns More Than 1% Of Sun Pharmaceutical Industries Ltd
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (RLI)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLF)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of Domino's Pizza UK & IRL PLC


CNBC.com with wires.

Symbol
Price
 
Change
%Change
HIG
---
JPM MLP ETN
---
LNC
---
MET
---
PRU
---
SPDR FIN SEL
---

Contact Fast Money

  • Showtimes

    Halftime Report - Weekdays 12p ET
    Fast Money - Weekdays 5p ET

Halftime Report