I have been an outspoken bear on bank stocks since 2005. (Just ask Jim "El Capitan" Cramer!)
In the 2005-2007 interim, I was short many of the major money center banks as well as the mortgage and bond insurers, government-sponsored enterprises and other specialty financials.
I got it right when such a position was not popular, and, significantly (for a change!), I was right for the right reasons.After shunning bank stocks (and being short) for a number of years, I am making a large (and growing) commitment on the long side for some of the following reasons:
- The curative process of substituting lost (or written off) capital for fresh capital continues apace and is now almost complete.
- The industry's historic financial (balance sheet) opaqueness is being replaced by renewed disclosure.
- The core banking franchises of deposit gathering and loan originating, which are producing solid growth in net interest income, remain intact.
- The banking industry's competitive position has been enhanced as the non-regulated shadow banking industry labors under high funding costs, funding availability, capital constraints and poorly diversified books of business.
- The banking industry's ne'er-do-well executives have been replaced by competent, pragmatic and more realistic management teams.