Bad News Banks

09/30/2013 12:00 pm EST


Jim Jubak

Founder and Editor,

MoneyShow's Jim Jubak is expecting some more warning flares from the banking sector as we enter the earnings season, but, he says, they may create opportunities.

US banks, the big ones, they are not really so much overtly warning, as they are sending out lots of flares that should be a warning. What it looks like for the next quarter's earnings, the earnings that will start getting reported in early October for the quarter that ends in September, is that we have really lousy numbers on trading revenue, and therefore, income. We are seeing a reduction in mortgage origination and refinancings. We are seeing some pretty big fines and settlements dished out. All of those things mean that these big money center banks are going to wind up reporting disappointing numbers and the question is whether we are seeing the disappointment now. We are certainly getting a lot of bad news with Citibank, Wells Fargo cutting their mortgage lending staffs, so it is not going to come as a surprise, so the question is, will we take it all down now? Have we taken it down far enough by the time these companies announce earnings? If we do, the only thing that balances is that we have not heard anything more about, well, more bad loans. It looks like the economy is chugging along fine to the degree that we are not really seeing a big increase in bad loans.

For banks that have still huge outstanding bad loan problems, and I think the one here is Citibank, that might be enough to generate a really good return of money from the reserves back to the earning statement, and that might be enough to balance out bad news from current operations.

Actually, if what you want to do is find a bank stock right now or hold a bank stock, what you really would like to do is to find someone where the bad news is being out there, so they are doing layoffs, as you can read about in the paper, and where the bad loans on the books at the end of the June quarter were still large enough so that you might get a big, big pop from a reduction in bad loan reserves in September. To me, that means Citibank is probably the best one, if you want to own a bank, if you want some exposure to financials, that, I think, is the best choice at the moment.

This is Jim Jubak for the Money Video Network.

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