RCM Editorial: Banks' Earnings Scorecard

Big banks with government support VS. Smaller banks operating in the real world

"Better than expected" EPS (the big banks)

Wells Fargo (WFC)

Goldman Sachs (GS)

J P Morgan (JPM)

Bank of America (BAC)

Worse than expect EPS (the smaller banks)

Keycorp (KEY)

Pacwest Bancorp (PACW)

SVB Financial (SIVB)

US Bancorp (USB)

Zion Bancorp (ZION)

State Street (STT)

Bank of New York Mellon (BK)

Comerica (CMA)

Huntington Bancshares (HBAN)

Northern Trust (NTRS)

ETC. (Too many to list, but you get the idea)

So the jury is back and the results were as expected for those of you who follow this blog. Over the previous few blogs the banking analyst at Rosenthal Capital Management (that would be yours truly) presented a case for a rather egregious dichotomy developing in the banking space at the behest of our government. In a desperate attempt to reverse investor sentiment and create an environment for banks to raise capital, the government changed rules and gave support to the biggest banks. The last 5 weeks have been rife with "positive" announcements from the big banks that led to a spirited stock market rally. Companies like GS have jumped at the opportunity to raise capital. GS issued new stock at $123 / share, raised $5 billion and the stock has not traded above $123 since even though we were told the deal was dramatically oversubscribed (the stock trades between $113-$115 as I write this).

Week 6 of the stock market rally is underway and reality can no longer be avoided or covered up. The smaller regional banks are announcing earnings and without the help of government the numbers can only be described as macabre.

Important Rule: The reaction to the news is more important than the news.

The direction of the market in the coming weeks can certainly be debated. Yes, we were right on the news, but often it takes time for the herd to respond to reality. Cracks in the foundation of this market rally have formed. Momentum is waning as the market moves higher and volume signals are flashing yellow. However, a market responding to government manipulation can be hard to predict short term so caution is the word of the day.