3 Bank Stocks: Looking Forward, Not Back
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Banks haven't been anyone's favorite companies for a while. The trouble with the world economy has been largely laid at their feet. The issues that confronted America and Europe were structural, yes, with overly risky mortgages and other questionable practices blamed on bankers being more interested in quick return than solid performance. It's no wonder that most people, from politicians to the man on the street, put all of the bad news since 2008 on banker's shoulders.
But we're past a lot of that. Not completely, but a lot of it. The news this weekend that Bank of America (NYSE: BAC) is going to get out from under the Countrywide subprime mess by paying a fine of $10.3 billion to Fannie Mae and Freddie Mac is a sign of moving forward. So is the news that international bank regulators are considering ways to relax liquidity rules to enable banks to loosen their lending requirements a bit more to spur economic activity.
What all this means is that both banks and governments are putting the mistakes of the past behind them. Banks are, hopefully, atoning for their collective wrongdoing in building the housing bubble and governments are, again hopefully, realizing that banks are necessary to bring about economic growth. Proper atonement, not geared toward punishment but towards fixing the problems, will finally give the western economies the needed stability to start moving forward.
Stable banks, under loose but not too loose, regulation, are the fuel to a growing economy and prosperity. Allowing the banks to lend money leads to small business starts and medium-sized business growth. Take care of those two things and we will see the biggest firm's do well. I've always been an advocate of small businesses as the basis of a sound economy. Those are the firm's that need loans on a yearly basis as they find ways to grow and expand. A big, muscular tech firm doesn't need the $100,000 loan badly, the two guys innovating in their garage do.
So getting the banks back on track, even if it makes people angry at times, is a needed development. If we want to see economic growth back up to 3.5% per year everyone will have to put the past behind them and realize that sometimes the past is just the past. It's not wise to let it control the present. Guide by it, sure, but not control it.
To that end, here are 3 bank stocks that I think can benefit from the stabilization of the banking sector.
Bank of America: At the time, I thought Bank of America buying Countrywide was a great play. Countrywide was in fatal distress and BoA had the money to pick them up. Two months later, the FBI announced that it was investigating Countrywide for fraud. Oops. Still, Countrywide, not Bank of American Home Loans, had enough business left in it to make the acquisition make sense for BoA. Bank of America stock took a beating for several years but in the past year its almost doubled, going from $6.27 to $11.98 per share. I think they're past the worst of it.
Deutsche Bank (NYSE: DB): One a lot of America-centric investors might past over Deutsche Bank is an interesting play. Tied with AIG it got hammered in the global economic crisis and saw its revenue drop more than 50% between 2007 and 2008. It wasn't a pretty picture. But over the last five years the firm has gone from a retail and commercial bank into worldwide investment bank. While the 2012 numbers are not yet in, in 2011 the bank's revenues exceeded its 2007 record of 30.7 billion euros. Share price has reflected this in growing from $33.64 to $47.41 over the last 12 months.
JP Morgan Chase (NYSE: JPM): This one should be a no-brainer for anyone who tracks bank stocks on a regular basis. Chase was the big bank that survived the mortgage mess best of all, using its financial muscle to improve its position during the meltdown. With the acquisitions of Bear Stearns and Washington Mutual the bank took on significant liabilities during the trouble but had the strength to either overcome or offset them. Even after all that Chase is the largest bank in the United States. The bank's stock, like many, saw rough times for a few years but has improved from $35.30 per share to $45.50 as of the close on Jan. 8, 2013.
The redevelopment of the banking sector isn't yet complete, of course. There's still a lot of hay to be made by politicians and CEOs about what restrictions and regulations will be in place to prevent another crisis from occurring. But the news over the last while about a easing of regulations and several banks paying their fines and moving on is a good sign.
So, keep watching the banks. People who manage money tend to stay focused on their tasks; it's a part of their personalities. Things go wrong when they stop focusing on their tasks and instead focus on themselves. If the big banks can put that into the past we should continue to see growth in the banking sector, especially among the big players.
More columns from Nate Wooley:
- Chuck Hagel and the Worry About Defense Stocks
- Chained-CPI: How the Government Plans to Hammer Consumer Stocks
- 5 Retail Stocks that Show Growth is Good
Nate Wooley has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America and JPMorgan Chase & Co.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!