Wednesday, October 20, 2010

Megabanks Back In The Hole (Or Headed There)

I shake my head whenever I hear the latest cutesy reason to invest in bank stocks.  Have you heard them too?

"They're too big to fail."
"Warren Buffett likes bank stocks."
"I'm an i-banker; buy my stock."

If you have heard such baloney and believe it, here's some real news.  Morgan Stanley had a net loss of seven cents per share in Q3.  Is that convincing enough?  How about BofA's net loss of $7.3B in Q3?  Not every bank is a disaster (yet), as Wells Fargo is chugging right along with a $0.60/share profit this quarter.  Uncle Warren thinks that's just fine, but I'm not inclined to follow him over the cliff when that rumored $1T or so in off-balance sheet liabilities shows up. 

If you bought bank stocks anticipating a broad economic rebound, you'll need lots of luck. 

Full disclosure:  No positions in BAC, MS, or WFC.