The Big US Banks' Biggest Problem
It's not foreclosures or bad paperwork—it's being stuck in slow-growth economies while the developing world and its banks are booming. So, what's an investor to do?
Here's my big insight for today: US banks have a big long-term problem.
But not the one you're thinking of right now. (Yes, I do have secret powers and can tell what you're thinking—although only about bank stocks.)
The headlines are full of news on robo-signers, mortgage foreclosure moratoriums, and put-backs that will cost banks billions over the next five years and drag out any resolution of the US mortgage crisis.
But that's not the biggest problem facing US banks and not the one that in the long term will doom them to second-class global status unless they can fix it.
What's that problem? The big US banks—JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), and Citigroup (NYSE: C)—are locked out of the world's fastest-growing banking markets (emerging economies, especially in Asia) and are locked into some of the slowest-growing (the United States and Europe). And I don't see an easy way in the long term for these US banks to break out of their slow-growth trap.
And that—if you agree with the argument I lay out below—should determine how you invest in these stocks, if you invest in them at all.
The Current Slump
Let me pick on JPMorgan Chase, the best managed of the big US banks and the one that came through the financial crisis in the best shape, to illustrate the problem.