Trader Talk

Pisani: Bank Stocks' Good, Bad & Ugly Truth

Banks holding up better than the rest of the market today, on several events:

1) credit is paramount; in general there is a moderation in the pace of increases of nonperforming loans and other assets (in other words, bad loans have peaked);

2) there is some talk that regulatory reform may also be looked at more closely in the wake of the Republican victory in Massachusets.

The cynics, though, are not going away. Lots of traders throwing snowballs at the "bad loans have peaked" theory. They argue:

1) it still stinks! Example: Bank analyst Tom Mitchell at Miller Tabak noted to me that Wells Fargo's nonperforming assets grew only 18 percent in the fourth quarter compared to the third quarter. It's true that it's "less bad," because in the third quarter nonperforming assets increased 45 percent—but it's still bad! Bad assets are still growing!

2) the commercial real estate bomb is still out there, and we have no idea how bad it will be. Put simply: we have rising vacancies, and lower rents; underlying demand is not showing signs of coming back, even though there is no overbuilding. We are still not getting the labor force put back to work, especially in financial services, at a rate that would fill up the office space. Retail real estate? Many observors think we are overstored by 30 percent.

With all that said, bank stocks continue to hold up well; bulls still have the upper hand. The cynics (see above) keep screaming that bank stocks have undeperformed for months, with many merely going sideways.

That's true...but do you have any idea how many new shares have been dumped on the market?

Look at Huntington Bancshares:  Okay, it's been hovering around $4 for months...but wait a minute...the share size doubled last year! There was 367 million shares outstanding at the end of 2008, now there's 715 million!

Look at Regions Financial: yes, it's stuck between $5 and $7 for months, but there's 1.1 billion shares outstanding now. There was 695 million at the end of 2008—up over 60 percent!

And I'm not even mentioning what happened to BofA, Citi, or JPMorgan's share count...get the point?

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