BEARS’ CASE AGAINST THE BANKS IS GROWING SOME WHISKERS

Gary Shilling:

Do current prices reflect the continuing deleveraging of banks, persistent slow loan growth, further write-offs of bad real estate and other assets, compressed interest-rate margins, increased capital requirements and increasingly stringent regulation? I’m not convinced they do.

Am confused. Banks are deleveraging? I thought they’re lately clamoring to return excess capital to shareholders, via dividends and buybacks. That’s the opposite of deleveraging, isn’t it? And large real estate write-offs by banks ended awhile ago. Meanwhile, loan growth won’t stay sluggish forever, nor will interest margins always be compressed. Yes, regulation has become more stringent, but that’s widely understood. Passage of Dodd-Frank was in all the papers. . . . Meanwhile, as Shilling points out elsewhere, the stocks trade at 1 times book value. You don’t need much in the way of surprise good news to nudge that multiple higher, and it’s not hard to imagine what that good news might be. . . .