Company of interest

Banks are attractive, despite loan loss provisions

The stocks of the U. S. banks are cheap. Their prices are only half of pre-COVID levels. Banks’ earning and profit are hurt by low interest rates, economic plunge, and heavy loan losses by businesses due to lockdown. Here are the amounts of dollars that the banks has set aside for loan losses in Q1 and Q2 in total, provisionally.

JP Morgan: $17B
Bank of America: $9B
Citigroup: $13B
Wells Fargo: $13B

There could be more loan loss in the next few quarters for these banks. But I think the bank stocks are attractive.

With the economy opening and further government supporting, the worst of the economic transition has probably passed. The Fed will provide more QE and it is unlikely to move the policy rate lower.

The U. S. 10-year yield could have bottomed near 0.6+% already.

Housing market is very active and that will create more demand for loans.

Finally the banks are still paying dividends of 3-4%, much attractive than the government bond. Though the dividend the payment will remain to be capped and share buy backs to be restricted by the Fed, they are the sources of strengths for the banks in the future.