New View on Banks Starts Today

 | Jan 16, 2013 | 10:51 AM EST
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The days of the radical revaluation of banks is now upon us. The days when we sit there and say "they are awful because of the net interest margins" are being put behind us. The days when we worried about the government every minute are behind us, too.

Now it is just time to make money and it is important to recognize that because of the difficulties of the previous era and how hard it is now to run the new gauntlet of regulations, there will only be a handful of companies that can dominate in each space and they will make fortunes.

This morning we saw that the traditional investment banking business is alive and well at Goldman Sachs (GS) and JPMorgan Chase (JPM).

Goldman dazzled not just in that department. I was truly shocked at how much many was made by equities, fixed income and commodities. Goldman has a return on equity of 15%, much, much higher than people thought.

It also had a remarkable decline in compensation costs. The shareholders are getting the incremental gains now, not the people who work at Goldman as the ratio of compensation and benefits to net revenues was 37.9% compared with 42% for 2012.

That's shocking.

Remember this is a real story now, not a jury-rigged one. These gains are NOT about a hedge fund that's in drag. They are about regular business lines making a huge amount of money.

Plus the place is brimming with cash. Tangible book value is now $134 and this company now deserves to sell at a 20% premium to tangible book like the old days.

You can see it going to the $160s on this quarter.

JPM? What do you say about a company that did $100 billion in revenue and yet cut the compensation of the CEO in half because of the Whale issue, which is now put behind them for good.

The whale's back in the Natural History Museum. We don't need to relive the Star Trek save-the-whales movie.

Here's what's incredible about JPM's numbers. Almost every single line but one, the net interest margin, was blowaway good.

You know what that means?

To me it says you are overly focused on that one line, which is going to change as business gets better in America and around the world.

The fixation on the government? It is passed. The fixation on the net interest margin? It's about to pass.

The focus on earnings and return of capital? That's 2013's emphasis.

And it is starting now. Today. Get big or go home.

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