Are the banks having such a hard time in the real world that it isn't worth owning them in the forward world?
After a period when people fell all over themselves to buy the banks, when we knew the rate hikes were coming, we've now had some rough days with the group.
The main focus? Same as always: a lack of volatility in the markets that makes it so that their hedging products -- big money makers -- aren't being asked for. In the meantime, we are also concerned that there may not be as much mergers and acquisitions activity if the Justice Department is trying to stop a deal that shouldn't be stopped -- the AT&T (T) -Time Warner (TWX) deal -- given that the antitrust division historically would never block this kind of merger.
Put aside for a moment that the charge is entirely taken because a change in the tax law reduces the value of Citi's tax losses.
Citi is a pretty high tax payer, upper end of the scale, so the tax change would be huge. That's the real issue.
You combine higher rates with tangible book value, something near $70, and add in the fact that Citi's going to be able to return more capital because of a lighter regulatory hand, and you have a fabulous situation, as we told club members this week in our conference call.
So, here's my take. I always gravitate toward a cheap group with a story. This bank group has many stories. Plus, if you want to, you can always buy PNC Financial (PNC) or KeyCorp (KEY) , which have much less exposure to the capital markets. (Our expert technical analyst Bruce Kamich has an article about what the charts are showing for KEY, and he says it may be time to go long.)
I think the decline is good news for the group. It's moved up too much ahead of the planned December rate hike, and a bigger selloff might ensue.
That would be a gift. So, I don't mind the down couple of days. I think the group's a fabulous buy for 2018.
This is just a speedbump on the way to next year's re-valuation up for the entire banking sector.