Boring Beats Bank of America

Bank loans? Banks still do bank loans?

Of course they do… but it’s easy to lose sight of this. JP Morgan’s $2 billion (and growing) trading loss shows our biggest banks act more like prop firms and hedge funds than lenders.

But there’s still room in the lending market for regional banks. These institutions don’t have trading or investment banking businesses. That largely keeps them out of the crosshairs of increased financial industry regulation.

Fifth Third Bancorp is one example of a traditional bank. Here’s a chart comparing its stock (NYSE: FITB) with Bank of America’s (NYSE: BAC).

See larger image

You can see both Fifth Third and Bank of America bottomed together in early March 2009. But since then they’ve taken separate roads to a very shallow recovery.

Bank of America came out of the bottom stronger than Fifth Third, but has since fallen all the way back to $5/share.

On the other hand, Fifth Third Bancorp recovered more slowly, but is still on a sustainable upward path.

Big banks are volatile because of the erratic nature of their trading and investment banking businesses. In these times, slow and steady wins the race… and that’s exactly what traditional banks are trying to do.

If you haven’t done so already read the Survive & Prosper issue on “Fed Offers Free Money in the Housing Market“.

 

 

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Categories: Economy

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.