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Fast Pro: Time to Buy European Banks

Thursday, 27 Oct 2011 | 12:55 PM ET

The financials were on fire Thursday as a euro zone deal to solve its debt crisis sparked a market rally. But does the move up really have legs? And is it safe to start looking at the European banks?

Fast trader Brian Kelly certainly thinks so. In fact, he’s now long the European banks. And he’s using history as a guide.

Europe Out of the Mix, Financials on Fire
A look at the best performers in financials today, with Paul Miller, FBR Capital Markets and CNBC's Steve Liesman takes a look at what's next for trading European markets now that a debt plan has been revealed.

“If you look at what happened after banking crisis in Japan in 1998 and then the U.S., U.K. banking crisis in 2008, a year later those banks stocks had doubled,” he said. “And the reason why is once they get that recapitalization money, they can now sell those assets that they didn’t want to mark down before and their book value increases dramatically.”

One of the names on his list is Banco Santander ,which has exposure to emerging markets and has been trading below book value. Kelly said it doesn’t even need to go to the market to raise capital—the bank says it will be able to do it from earnings and dividends.

But trader Stephen Weiss disagrees. He said he “wouldn’t touch the European banks” right now. So what about the U.S. banks?

“I like our banks but I think they’ve run a bit,” he said. ”I’ll wait for them to come back”

Paul Miller, an analyst with FBR Capital Markets, thinks the EU deal takes a big “if” off the table for U.S. banks with overseas exposure like Morgan Stanley .

“There is a long way to go if this fixes everything over there,” he said, “but if we don’t go into a recession, if what the Europeans is doing is truly fixing their balance sheets, than yes, the U.S. banks that people felt had the most exposure over there are going to catch a nice bid.”

And while there is still a “laundry list” of issues with the banks, right now it’s all about valuation.

The banks have gotten beaten up over the last year, he said, and now they've come through earnings with some growth.

“There’s a lot of negativity there,” he said, “but the valuations make them enticing.”

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Trader disclosure: On Oct 27, 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; Weiss owns VZ; Weiss owns F; Weiss owns NIHD; Weiss owns AKAM; Weiss owns JEC; Weiss owns WLP; Weiss owns COP; Weiss owns MDRX; Weiss owns RIMM; Weiss owns HPQ; Weiss owns WLT; Weiss owns AGU; Najarian is long CIGX; Najarian is long CBOE; Najarian is long CME; Najarian is long DB; Najarian is long CS; Najarian is long UBS; Grasso owns AA; Grasso owns AKS; Grasso owns ASTM; Grasso owns BA; Grasso owns BAC; Grasso owns D; Grasso owns KEG; Grasso owns LIT; Grasso owns MHY; Grasso owns PFE; Grasso owns S; Grasso owns XLU

For Jon Najarian
Najarian has long call spreads in AKS
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For Rich Ilczyszyn
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Fadel Gheit
The analyst/associate/member of the analyst's or associate's household owns a long position in XOM. The Oppenheimer & Co. Inc. analyst(s) who covers this company also has a long position in XOM. A member of the household of an Oppenheimer & Co. Inc. research analyst who covers this company has a long position in XOM.

For Amelia Bourdeau
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For Howard Lindzon
Lindzon is long NUAN

For Paul Miller
The primary analyst(s) covering the issuer(s), Paul Miller, Jr., CFA, certifies (certify) that the views expressed herein accurately reflect the analyst's personal views as to the subject securities and issuers and further certifies that no part of such analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in the report. The analyst(s) responsible for this research report has received and is eligible to receive compensation, including bonus compensation, based on FBR’s overall operating revenues, including revenues generated by its investment banking activities.
Information about FBR's

For Brian Kelly
Shelter Harbor Capital is long Santander
Shelter Harbor Capital is long Euro

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