Bank Earnings Back to Abysmal Normal: Street Whispers
NEW YORK (TheStreet) --Investors waiting for bank earnings to get back to normal may need to change their definition of what normal is.
According to research published last week by Deutsche Bank, bank earnings are consistent with or just slightly below the median since 1975 by five different metrics. Revenue to assets, for example, are at 4.9%, compared to a 5% median since 1975. The median since 1934 is 3.5%. Starting in 1990 and leading up to the 2008 crisis, that number got close to 6%. Right after the crisis, it fell to about 4.5%.
Net interest margin peaked in the mid-1990's at about 4% and hit a post-crisis low of 3%, before rebounding to its current level of 3.5%--equal to it median since 1975. The median since 1934 is 2.9%. Similar trends are visible with expenses and provision expenses as a percentage of total assets,and non interest income as a percentage of total assets.
Return on assets has been far more volatile. It was well above 1% in the years leading up to the 2008 crisis, but then dipped into negative territory. It is now at 1.02%--well above the 0.76% median since 1975.Those who take a longer view, then, could conclude that bank earnings were above normal in the 10 to 15 years preceding the crisis, and have only recently reverted to a level investors should come to expect. -- Written by Dan Freed in New York. Follow this writer on Twitter.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV