The S&P outperformed all six banks, which I expected. That Citi was next best was a shock. I suppose it's because of a rebound effect of coming out of government ownership. Careful examination reveals that the formerly-insolvent bank has headed downward in terms of shareholder value since the beginning of the year.
The next pair of banks tracked each other closely- Wells and Chase. Neither one was close to failing, but, then again, neither was ever really a stellar bank, either. Solid middling finishes below the Index.
Last come BofA, MorganStanley and Goldman.
BofA I would have expected, as well as MS. Goldman has been declining all year, along with the other two.
Yesterday, I listened to some pundit on CNBC declare that he confused Goldman's results with MorganStanley's, so mediocre were they. Much was made of Goldman's pullback from risk, thus causing a precipitous drop in trading earnings. That the firm is not diversified and balanced, like Chase or Wells, so it's suffering from the misfortunes of only one business. The Wall Street Journal carried a prominent piece critiquing the firm's quarterly performance, as well.
Noises are being made about Goldman tightening its belt for a lean year, cutting staff and riding out the near term markets.
However, stepping back a bit to study the price chart above, I think something else is finally occurring.
The most significant feature of the chart, for me, is that the S&P500 has outperformed all six banks over the two years. Further, all six are generally in decline since January, while the Index has flattened or been slightly positive.
Here we are, two years after the recent global market lows, and the largest US financial firms haven't been able to outperform the broad market.
One-time thoroughbreds MorganStanley and Goldman Sachs are slumping, likely the victims of intended consequences of the Dodd-Frank regulations. Ordinarily, I'd say bet on monoline financial service firms. But given the punitive nature of Dodd-Frank, and the reasonable effort to separate risky trading activities from government-insured businesses, that probably no longer holds for these two firms.
As for the other banks, well, I think it boils down to this. Sector analysts like Tom Brown and Dick Bove have to make a living, so they'll be calling an eternal horse race among the four. But BofA remains poorly-run and generally expected to splinter at some point in the near future. Citi remains a wreck, too. Once the various capital market effects of its brush with death fade, it can return to being a large, poorly-run, badly-designed large bank. Perhaps, like BofA, it, too, will finally shed some of the more cumbersome businesses in its portfolio.
Which leaves the two mediocre leviathans, WellsFargo and Chase. Neither is anything to write home about. They will likely remain timing plays for the analysts to use as fodder for their cable television appearances as the banks rise and fall over the ongoing quarters. If BofA and Citi become less horrific, they can rejoin that short list.
Whether Goldman or MorganStanley return to private partnerships is unclear. With the former's downward vector, it would be a classically bold, yet sensible move for the firm to buy itself when others see little value in owning it.
But what's pretty clear is that we are witnessing the last stages of consolidation and stagnation of publicly-held private financial sector firms in the US. Conventional commercial banking among the large players has become predictable, overly-regulated, costly and uninteresting. Investment banking looks to be suffering as intended under Dodd-Frank.
The US banking sector, at the large end, is nearly at the point of being appropriately uninteresting as a home for long term, consistently superior total return performers.
No comments:
Post a Comment