“It’s time to buy banks. They’re cheap, aren’t they?” —–Doug Kass (paraphrased), June 2008
Look you value hunters, banks are being beaten to a pulp because they deserve it. This will continue until the quota of CEO terminations is fulfilled, according to the prophecy.
The disaster in the residential real estate market, partly due to the egregious lending practices, is starting to surface in the commercial construction and business loan markets now. As we converse at this very minute, many retailers are beginning to throw in the towel and cut back on store expansions. In addition, retailers are closing stores, so lease revenues are going down. And ,those commercial RE projects that developers were giddy about are now being put on hold or trashed altogether. Permanent financing has dried up in the CMBS market.
A bigger question arises with corporate loans. Default rates are still low, but mark my words: they will begin to rise as the economy continues to have the “brakes of wrath” put on it. Remember all those private equity deals and LBO loans the past three years? They are starting to get stress fractures. S&P and Fitch say so. Look it up.
Finally, bank stocks are not cheap, contrary to the “$10 backstopping theory”. Back in the day of the last banking debacle (1988-1990), banks stocks actually traded down to 80% – 90% of tangible book value. Some even 40%-50% of TBV. We aren’t there yet. All told, from 1988 – 1990 over 1,000 banks failed.
Year-to-date, we are sitting at a grand total of four bank failures.
There will be blood.
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