Thursday, June 23, 2011

Large US Bank Performance In The Wake of Concerns Over Increased Capital Requirements

Tom Brown's announcement in early June that he had bought BofA shares for his sector fund. That post was on June 3rd, so Brown bought no later than that- perhaps in late May, perhaps earlier that week.

On June 9th, I wrote this post discussing the subsequent call by various regulators for large "too big to fail" banks to hold from 3% to perhaps 7% additional capital.

As of yesterday, the major US banks included in the nearby price chart, have all declined since late May. The S&P500 Index is about flat.

We don't know precisely when Tom Brown bought his fund's BofA shares, but all of the banks shown- Citigroup, Chase, BofA and Wells Fargo- have declined absolutely and relative to the S&P for the past three months.

No wonder Brown was cheering on Jamie Dimon's objections to the sensible call for these banks to be capitalized as, well, banks, rather than unsecured loan providers.

Could it be that between the divestitures and closures of now disallowed businesses, and the specter of higher capital requirements, these banks are in for a long term correction down to price levels more consistent with giant, slow-growing, government-insured deposit-taking financial utilities?

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