Blogs & Comment

Rally in bank stocks

Financial stocks have seen a good rally since March of 2009. Is itfor real?A few doubts could be raised.
Some analysts like U.S. financial stocks because they are trading close to book values. But mark-to-market rules were suspended during the financial crisis, so actual book values remain a question mark. If the rules were in force, says Noster Capital managing partner Pedro de Noronha, the writedowns would be in the order of 30% to 50%.
Others have hailed a recovery in earnings. But a lot of it stems fromaccounting conventions. Two of the bigger examples are:
Financial Accounting Standards Board (FASB) Rule 159 has allowed price declines in bank debt to be interpreted as billions of dollars in income
up to half of the profits reported by U.S. banks for the last quarter resulted from reversing provisions taken earlier for bad loans.
The positively sloped yield curvebetter kick in soon.By allowing banks to borrow at low rates and lend at higher rates, it historically has been a tonic for balance sheets and earnings. But has the extent of the damage caused by the financial crisis substantially delayed its restorative effect?