Investing In US Money Center Banks- The Recent Track Record

It's earnings season, and already two of the nation's largest money center banks- Chase and BofA- have reported disappointing results.

It's also just a little over two years since the post-financial crisis market bottom of March 2009.

So how have the largest US commercial banks- Chase, Citi, BofA, Wells Fargo- performed, relative to the broad US equity market, as represented by the S&P500 Index?

Not so well. The first three have underperformed the index on an absolute basis. Wells has done a bit better, but not sufficiently so for the relative risk of a single equity to the broader index.

I had lunch with a long time business colleague on Tuesday of last week. Neither Chase nor BofA had, at that point, reported earnings. Still, we laughed at how many pundits had recommended bank stocks over the past few years. While I can't cite specific dates, I'm pretty sure both Jim Cramer and Dick Bove have gushed over Chase or Citi in the past two years.

Despite the many years which have passed since my friend and I both worked at Chase, the basic character of each of the nation's largest banks has not changed materially.

Citigroup's risky business strategies should have resulted in its dissolution, except for the general financial crisis in which it luckily happened to occur. Once upon a time, long ago, I suggested to colleagues that the way for Chase to have been better-valued was for the whole sector to become as mediocre as our bank was. Citi took the idea to new lows, and survived.

BofA continues to labor, as the nation's bank with the largest consumer business, under the burden of being more or less tied to that sector's fortunes. With high unemployment, stagnant wages and rising prices for ordinary consumer purchases, being the country's largest consumer banker is no picnic, as last week's BofA earnings report proved.

Chase remains the sluggish, less-well-defined bank which just never seems to either soar, or crash. As my friend reminded me, it was Chase's genetic inability to do anything quickly which allowed Jamie Dimon to avoid the worst of the mortgage-related disasters and therefore be relatively better positioned to scoop up some failed large commercial banks, such as Washington Mutual, as well as a government-insured bid to takeover failing Bear Stearns.

Wells Fargo continues to be a bit nimbler and better-managed than its eastern counterparts, but its attempts to bulk up have ensnared it in continuing mortgage problems. By swallowing Wachovia, which had purchased California's Golden West S&L, Wells inadvertently exposed itself to more losses and trouble than it probably expected.

It's been years since a commercial bank was selected by for one of my equity portfolios, and the appearances, even then, were few and brief.

I can't see anyone who seeks to consistently outperform the S&P500 using large US commercial banks to do so- now, or anytime soon.