In November of 2010 when we highlighted 5 Chicago Banks Poised for Long Term Growth, we hedged by saying the names were "only attractive when we go out to 2012 and are best considered by long-term investors with horizons of several years."
It's a good thing too, because four out of five picks saw significant declines this year. Then again, four out of the five beat the year-to-date performance of the KBW Bank Index (I:BKX), which was down 26% year-to-date, through Wednesday's close at 38.88.
Back in November of 2010, we selected five Chicago banking names for investors looking for long-term growth amid an economic recovery in the Midwest, with the help of John Rodis, an analyst who at that time was working for Howe Barnes Hoeffer & Arnett, and now covers Midwest banks for FIG Partners.One year later, Rodis says that like most markets, Chicago "is still looking for a bottom" for housing prices, but "we're maybe in the worst case down another 5% to 10%." "On the commercial side," according to the analyst, "we're seeing signs of stabilization, closer into the city," with a "definite movement of distressed assets. Bank are seeing bids, and the bids seem to be more realistic than they were a year ago." Rodis adds that "the banks in most cases have taken their losses through reserve provisioning, so that should bode well going forward. While all five names remain cheaply priced to tangible book value -- with two trading below book -- four of the five trade for 12 times forward earnings estimates or higher, which seems expensive in the current environment for bank stocks especially when compared with familiar names like JPMorgan Chase (JPM), which traded for less than seven times the consensus 2012 earnings estimate of $4.87, among analysts polled by FactSet, when the shares closed Wednesday at 32.65. Here's the same list of 5 Chicago banks that we looked at a year ago, in the same order:
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