Banking Earnings Outlook Poor. Time to Buy?

Aren't you glad to be a retail financial advisor who eats what he kills? Bankers are not so lucky (more layoffs to come). My inbox is full of bad news --- oh, and some positive news. Let's see, the New York Post, which covers parochial issues (Wall Street, Madison Avenue, publishing) in its business section very well, reports that Wall Street firms are in a "lost decade" of their own. And then I got an update from Richard Bove, the outspoken analyst at Rochdale Research, who writes: "Investors are buying the the stocks despite the mountain of 'evidence' being thrown at the industry. This is a very good sign. Possibly the fundamentals in banking have become so compelling that the stocks are now rejecting psychology and reacting to the basics." Then Bove draws up a long list of negatives!

The Post says today:

Nearly four years after the financial crisis brought the industry to its knees, Wall Street is still retrenching. Banks are in the process of reviewing staffing levels and various businesses — a process that could result in tens of thousands of new layoffs, or a 15 percent reduction in industry head count in the coming months, sources said.

Senior bank executives said they are planning “multi-year” reductions in hard-hit businesses such as fixed-income desks, where bonds are traded. Historically low interest rates are making it tough for banks to generate income from underwriting new loans.

“You’re going to see firms cut capital-intensive businesses and trim down their balance sheets across the board,” said one senior banker.

As Michael Mayo, an outspoken bank analyst at CLSA, told The Post: “We expect revenue growth in the banking industry to be the worst its been since the Great Depression.”

Bove, on the other hand, having created a laundry list of problems (more lawsuits, Obama raising taxes on banks by $60bn, potential ratings cuts), nevertheless writes: "Through it all bank stocks go up. Something has clearly changed. It just may be that some investors are looking at the fundamentals for this group." Bove says bank valuations are "by any historical standard" too low.