${Html.ActionLink("My MarketWatch", "index", new { controller = "composite", area = "section", page = "my" })} | !{Html.ActionLink("Sign out", "LogOff", new { area = "User", controller = "Account" }, new { id = "signOutLink" })}
Welcome, ${UserDisplayName}
Log in
Become a MarketWatch member today
David Weidner's Writing on the Wall Archives | Email alerts
April 17, 2012, 12:01 a.m. EDT
Want to see how this story relates to your portfolio?
Just add items to create a portfolio now:
Create Portfolio or Cancel Already have a portfolio? Log In
By David Weidner, MarketWatch
NEW YORK (MarketWatch) "” Please buy bank stocks.
In those four words lies the message from Wall Street this earnings season. And, no, you're not missing anything. There's no improvement in the housing market. Consumer credit isn't budging. The stock market, for all of its six-month rally, hasn't translated to big trading revenues or a rush of underwriting fees. Fixed-income trading is still sluggish.
There's really no good reason to buy the big banks, other than wishes and hopes. The bank earnings we've seen so far have been lukewarm, pumped up by job cuts and comically low Wall Street expectations.
Take Citigroup Inc. /quotes/zigman/5065548/quotes/nls/c C +3.97% , which had a big upside surprise when it announced a $2.93 billion profit Monday. If the good times continue, Citi would be on track to earn about $11.7 billion for 2012, a modest increase from 2011.
To get there, one would have to assume Citi will continue to earn at that rate despite its tangle of one-time gains and losses: a $1.3 billion charge on the value of its debt, the sale of its stake in a Turkish bank, more asset sales from its "bad book" of assets, Citi Holdings.
All of this questions how much of its profit was sustainable. After all, Citi's revenue fell 1.6% during the quarter from the same period a year earlier.
Citigroup didn't have a bad quarter, and we're not trying to pick on them. What's problematic is the veneer put on these earnings by those who shape investment decisions "” none of whom you should fully believe, if at all. Read "Curb your enthusiasm about Citigroup."
There are the banks themselves. It's the job of chief executives such as Vikram Pandit at Citi and Jamie Dimon at J.P. Morgan Chase & Co. /quotes/zigman/272085/quotes/nls/jpm JPM +1.08% to sell their respective stocks.
That's why Pandit talked about reapplying to the Federal Reserve about issuing a bigger dividend. It's why Dimon can say the housing market has bottomed "” lifting two sectors (banking and home building) at once "” even though profit actually fell 3% from the same period a year ago.
Rates for the top quarter of law-firm partners rose 4.9% last year to $873 an hour, while those for the bottom quarter rose just 1.3%. Jennifer Smith reports on Markets Hub.
Then there are the analysts whose job is also is to sell stock, or at least drum up interest. Veteran industry analyst Glenn Schorr wrote "All in, we think Citi's executing according to plan and the stock is cheap." One trading day after J.P. Morgan reported, two analysts, Todd Hagerman of Sterne Agee and Jason Goldberg at Barclays, raised their price targets.
As an investor, if you can't see Citigroup is priced exactly where the market thinks it should be priced and that J.P. Morgan has yet to give a reasonable explanation of how it will grow profits before year end, you deserve to lose every dime you invest.
Again, an analyst's job is to sell stock. Unless that analyst is Meredith Whitney, whose job is to be bearish until something bad happens.
After a Fed rebuke Citigroup weighs whether to ask again for permission for a dividend increase or a share buyback. Suzanne Kapner reports on Markets Hub. Photo: AP.
Even if an investor can cut through the bank hype and the analyst hype, there is a third obstacle: the media. Take for instance the headlines on J.P. Morgan's first quarter. Remember the profit came in at less than last year's level:
Buy bank stocks, please
Stock futures maintain gains after data
U.S. stocks rally as global woes ebb
What the euro's strength can teach us
Europe stocks extend gains after German ZEW
Did Goldman earnings save Blankfein's job?
S&P 500 returns to scene of the breakdown
Can "?Good Morning America' keep it up?
France may challenge austerity with shift to left
Sports Fans Defend College Town Real-Estate Market
Trading Strategies: Spring Cleaning
Buffett is Wrong on Taxes, Says Arthur Laffer
Europe's Week Ahead: Air Traffic, PMIs & Payrolls
David Weidner is the Wall Street columnist for MarketWatch. He formerly covered M&A and financial services at The Daily Deal, American Banker and Dow Jones... Expand
David Weidner is the Wall Street columnist for MarketWatch. He formerly covered M&A and financial services at The Daily Deal, American Banker and Dow Jones. He writes the Writing on the Wall column which appears Tuesday on MarketWatch and Thursdays on WSJ.com. He also is a regular contributor to the News Hub. Collapse
The Technical Indicator
S&P 500 returns to scene of the breakdown
Tech Tales
Investors hope Yahoo will discuss strategy
Writing on the Wall
Buy bank stocks, please
Read Full Article »