Despite what you may believe from the daily cheerleading by CNBC equities reporter Bob Pisani, simply holding a basket of these largest six (surviving) equities for the past five years was worse than holding the anemic S&P index.
Yes, Pisani is largely valueless as a reporter, because he's really just an equity markets shill. But it's a deeper issue than that.
First, as I noted, there's the survivor bias. Wachovia acquired itself out of business, while Bear Stearns just imploded. Merrill Lynch and Countrywide are gone, now part of BofA.
Even if you knew in advance which large financial institutions would survive, you'd have to be pretty fortunate to randomly pick the winner- Goldman Sachs. Chase and Wells Fargo basically tied the S&P with no price appreciation over the period. It's difficult to credit those latter two CEOs with being paid handsomely for simply tying the index. If they were hedge fund managers, they'd be pilloried on Capitol Hill.
Citi and BofA remain, of course, unholy messes. The former should have been allowed to fail, so that better management could have gained access to that large asset base. Morgan Stanley continues to limp along, performing like a badly-managed commercial bank, but with the business mix of Goldman Sachs.
If you look back just about a year, you see that, in general, prices have either flattened or actually dropped. So timing didn't really get you much in a year when the S&P rose 15%.
Then there's the sector's prospects for 2011. Here, Goldman is again probably the best-advantaged of a mediocre bunch. With no asset base like a true commercial bank, it doesn't own mortgage portfolio valuation risks and, if it behaves as it has in the past, may even bet on further declines in related assets. For the commercial banks, recent housing price weakness, noted recently in posts here and here, portend another round of punishing valuation plunges reminiscent of late 2007.
Between that imminent risk, and the uncertainty of rebuilding fee income in the wake of the Dodd-Frank bill, commercial bank revenues are not so, well, bankable. Plus there's the reality that bank profitability historically rises with rates...which are ultra-low and show no particular sign of rising.
Unless you feel lucky about timing financial equities, there's not really much positive in the outlook for financial equities.
All of which leaves me critical of CNBC's ceaseless pumping of financial equities. At least Kelly Evan's recent Journal piece on the upcoming earnings season cautions on financial sector equities.
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