Why are the bank stocks so vulnerable every time we have a selloff? Why are they the least investible companies, the ones that get hit hardest?
I think it's worth asking on a day like today because, once again, they are being crushed, spindled, and mutilated.
Think about it. They aren't like cruise ships that might be banning those over 70 for safety reasons - hmm, there go the customers. Of course other, younger people, take them - they are incredible bargains after all, but it will be a long time before this era has been forgotten.
They aren't like the oils, which are in the cross hairs of not one but two counties, Saudi Arabia and Russia, and the decline is so swift that Occidental (OXY) has already had to shred its dividend and others will soon follow suit.
They aren't like the retailers or restaurants that might suffer as fewer people go out and the stay at home economy takes over.
They aren't like the airlines that have gigantic capital costs and, even as they are much better capitalized than the old days, still never seem to have enough cash in the till to tide them over.
And they certainly aren't like the big industrial and technology companies that are finding it hard to close deals as enterprises frantically try to cut back on capital spending to preserve cash.
So what's the problem?
I will tell you what the problem is. They aren't any of those companies but they are the principal lenders to all of those companies and, right now, because of the shape of the yield curve, you have banks making risky loans to the customers without any real reward of high payments.
For example, Norwegian Cruise Lines (NCLH) on Monday borrowed $675 million from JP Morgan (JPM) . They are a client and JP Morgan is going to help its clients in good and bad times, a spokesperson for the bank said after the loan was made.
That's certainly true. That's what make JP Morgan a fantastic bank. But what happens if the virus keeps raging and the customers don't come back? Filings show it has $6 billion in long-term debt. This company is such a fabulous company with such terrific management you would love to say that they have to make it. But when Tony Fauci, the country's chief epidemiologist, says the elderly shouldn't take cruises, that's not inspiring for younger folks either. It doesn't help that so many cruise ships seem like floating petri dishes or hospital ships without the red crosses.
But the president has pledged help. Maybe there will be loans to offset loans they have? I don't know if that will fly with anyone in Congress. The cruise ships have so many employees and we don't want them thrown out of work. However, it is hard to see how they can be able to stay whole. So who will get hurt? I would say the lenders.
Every one of these industries takes down debt. Everyone in the industries are, we say, suspect? If cruise lines and restaurants and retailers and airlines and oils are in trouble, so are their bankers.
Now you could say the banks are scrubbed clean post the great recession. That they have plenty of fees. That they are lean as all get out. Many now have bountiful yields because their stocks have fallen so much. They can stop their buybacks to fund the dividends. In the end, the yield curve, the fed funds rate and now the risk of loans going bad has made these just awful investments.
It won't always be this way. Our banks are the best banks in the world. They have oodles of cash. Nevetheless I can't figure out how to value them right now with all of these questions. From the looks of things, no one else can either.