Money in the Bank: How to Find Opportunities in a Fallen Sector
by John Deysher
In the past year or so, bank stock prices have fallen sharply, reflecting a negative shift in sector prospects.
Since summer 2007, the Value Line Bank Index is down 25% and the Thrift Index is down 30%. Some banks have reduced or eliminated their dividends, a sure sign of stress. The causes include:
Declining loan quality. Non-performing assets and loan charge-offs are rising across most loan categories—real estate/home equity loans, credit cards, highly leveraged transactions and others. At year-end 2007, about 1.4% of all loans were delinquent, according to the FDIC. That’s the highest level since 1992, but still below the 2% level reached in 1990–91.
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