Anyone looking at bank stocks?

**banditfist** · 07-14-2008, 09:56 AM

The Contrarian view would be to buy.

I think that the implementation of FASB157 is what to watch out for. The financials still have a craptastic amount of level 3 assets. They still have a lot more writedowns coming in the months ahead, IMO.
The acquisition of Countrywide was NOT a good thing for BAC. CFC has/had a lot of liabilities. With the lawsuits from several states occuring before the acquisition date, means that BAC was aware and cannot divest that part of CFC. They willingly took the liability.

**noppenbd** · 07-14-2008, 09:56 AM

I'd be nervous about buying an individual bank, for fear they could end up like Countrywide/Bear Stearns. I have entertained the thought of buying a financial ETF like VFH. It's down 43% for the past year.

**disneysteve** · 07-14-2008, 10:08 AM

Originally posted by noppenbd View Post

I have entertained the thought of buying a financial ETF like VFH. It's down 43% for the past year.

That's a thought. I may have to look into that option.

**noppenbd** · 07-14-2008, 10:23 AM

One thing to remember is that you may already have a lot of exposure to financials in S&P500 index funds or value funds.

**toboramai** · 07-14-2008, 01:32 PM

Originally posted by banditfist View Post

The Contrarian view would be to buy.

I think that the implementation of FASB157 is what to watch out for. The financials still have a craptastic amount of level 3 assets. They still have a lot more writedowns coming in the months ahead, IMO.
The acquisition of Countrywide was NOT a good thing for BAC. CFC has/had a lot of liabilities. With the lawsuits from several states occuring before the acquisition date, means that BAC was aware and cannot divest that part of CFC. They willingly took the liability.

Being a contrarian does not mean you are right. I had a debate on here about a month ago with an individual wanting to buy Citi. It is now down 25% from a month ago.

Not trying to be doom and gloom, but we are in a banking crisis. If you do not understand the current crisis, you should not be investing in it. You are going to have regional bank failures and possibly national as seen by Wamu.

Secondly, many of these bank are still raising capital and will result in huge share diluation meaning your investment is worth less than at purchase.

The return on financials the past 10 years has been an abberation. Historically, they have not had this high of return. They have been able to achieve this because of leverage which is no longer feasible.

Lastly, the worst case scenario is a Japan like recession which lasted 10 years and was a result of their banking crisis. Our recessions has many similarities and lessons should be learned. Both a result of a real estate boom and subsequet bust which caused a banking crisis. Japan's crisis was more servere but it provides a lesson to us investors.

To emphasize, don't invest in financials unless you understand the crisis.

**jIM_Ohio** · 07-14-2008, 01:50 PM

If you have a 20-30 time horizon, I'd be buying blue chip banks.

**noppenbd** · 07-14-2008, 01:56 PM

Still, XLF (financial ETF) is 25% below it's opening price of $23 back in December 1998.

**JBinKC** · 07-14-2008, 02:08 PM

I am in Toboramai's camp. Housing is in a deflationary environment and the banks are suffering big time from the repercussions of it. Unless I see a sign of that deflationary trend reversing there is no need to bottom fish.

**disneysteve** · 07-16-2008, 02:56 PM

Originally posted by disneysteve View Post

I know this is an odd question coming from me, but at some point, the bank stocks have to start looking attractive. Bank of America is under $21/share today

Darn. BoA shot up $4.15 today. I've been watching it and just hadn't taken the plunge. Hate when that happens.

**Broken Arrow** · 07-16-2008, 05:45 PM

I'm definitely look at financials, including the banking industry.

Short term, banks are having a massive rally the past couple of days.

However, fundamentally, I have to agree that there is a lot of weakness out there right now.

Still, that does not mean that opportunity does not exist out there. Companies with fairly strong balance sheets that are simply getting pulled down due to proxy to the industry or sector.

However, because of the recent pop (such as today), I wouldn't recommend buying just yet. Wait for continued weakness to get baked in well and good before acting. However, I think that time is coming up very soon....

**Broken Arrow** · 07-16-2008, 06:19 PM

Originally posted by toboramai View Post

Being a contrarian does not mean you are right. I had a debate on here about a month ago with an individual wanting to buy Citi. It is now down 25% from a month ago.

That might have been me.

And you would be correct.

Citigroup did fall significantly. That was due to my error for buying into something I did not understand. The full extent of Citigroup's involvement in the sub-prime lending was something that was not revealed in its entirety at the time. Citi only gave out estimates, which in hindsight was rather optimistic. And I bought into that. As the saying goes about hindsight....

Nor does simply being contrarian make one right. At least, depending on strategy and investment style. I learned something interesting about myself recently. Even though I am still a devout believer in value investing, the truth is, I behave much more like a swing trader. In other words, I was thinking left but moving right. I was a mess. I've also learned exactly why it is so important to stick to any one strategy, because some strategies simply don't mix. Not unless you enjoy losing money.

I've also pulled out of Citigroup much earlier on, so I didn't take the full brunt of the losses so far.

So, am I still a contrarian? Yes, but it is now adapted in a way that I think is much more practical given my evolving investment style. And yes, I still believe that financials remain a strong buying opportunity. Especially now, more than ever.

If my words aren't good enough, how about Warren Buffett's? Here's his 13F filing. Look through it and you will see that his single biggest position right now are in financials. Classic contrarian play.

Chances are good that I'll be buying back into financials very soon. However, I will be much more careful next time around.

**tripods68** · 07-16-2008, 08:09 PM

DisneySteve--WFC is the only stock i'm looking to buy after they beat WS expectation by 3 cents today. However, I have WFC on potential buy at $23 to $24 range. I'm very familiar with this stock history and performance and former employee of this company. I would agree about the financial ETFs; however, you might still see stock capitulation overall broader financial sectors due to more expected write downs 3rd and 4th quarters and the potential interest hike that might come late in the year. I would still avoid financial sectors for now if you are not savvy investor. Still be wary.

**jc3900** · 07-16-2008, 08:47 PM

Yeah, you have to remember that just because a stock or even a sector for that matter is at a multidecade low, does not mean it can't go lower. I am not saying that the financials arn't going up or necessarily down. Just keep in mind that stocks do crazy things and be ready to go on a bumpy ride if your taking the jump on the financials.

**noppenbd** · 07-17-2008, 04:50 AM

It all depends on your time horizon. If you are buy-and-hold now is a very good time to set up a position in financials.

Anyone looking at bank stocks?