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Smoke and Mirrors: The US Banking Sector's Hidden Strength and its Impact on Institutional Action

Updated: Mar 22

BAC, C, JPM, and FIS

Kicking off this investigation, we dive deep into a concerning phenomenon: the deliberate misrepresentation of "bank weakness" that has sent shockwaves through the stock market. Over recent times (mainly since the regional banking crisis), an unfortunate trend has emerged where fear about the finance industry appears to wield a significant influence in driving down these institutions' stock values. This article delves into the forces at play, aiming to uncover the motives, methods, and consequences of a potentially orchestrated campaign to deflate the stocks of U.S. banking giants.

The U.S. banking sector has demonstrated a notable resurgence in financial health, marked by more robust capital reserves, improved risk management practices, and enhanced regulatory oversight. Not only do the financial metrics support this, but now the price point even supports a bullish position in many banking companies. Despite this resurgence, the media and many talking heads continue to announce bearish stances mainly based on questions on the health of deposits, alleged too-slow growth, high-interest rates, and elevated cost of capital. As a result, many big banks' stock prices have continued to suffer: BAC is down 20% this year, C is down 11%, FIS declined 27%, and JPM is up a mere 4%.

Despite all this negative coverage, let's look at how they did this earnings season: BAC (Bank of America) grew net income by 10% YoY, C (Citi Bank) beat expectations with 14% revenue growth, JPM's (JP Morgan) profit increased 35%, and FIS (Fidelity) exceeded expectations on both ends, along with more upbeat numbers from the other big banks. Not only are the earnings reports good, but many of these banks' price points and valuations couldn't get any better. Citi Bank is trading at 0.4 Pr/Bk (40% of its book value), JPM's forward Price to Earnings ratio is currently 9.4, FIS's forward PE is 7.9, BAC is at 8.44 for PE and 0.9 Pr/Bk (versus the SPY or overall market with a forward PE of about 18). While these metrics haven't saved the big bank's stock prices yet, many institutions are seen loading up on shares through the dark pools.

Looking at the off-exchange (dark pool) volume on these banks will help give insight as to what institutions are doing with these stocks behind the scenes:

BAC - Net accumulation of 505M shares

JPM - Net accumulation of 45M shares

FIS - Net Accumulation of 74M shares

C - Net accumulation of 154M shares

For all these big banks, there has been an enormous surplus of buyers to sellers over the last six months, as demonstrated by the off-exchange volume profiles above.

In conclusion, the big banks represent solid investments with a track record of resilience and adaptability. Despite the challenges and economic uncertainties that have come their way, these financial giants have demonstrated their ability to weather storms and emerge stronger. For investors seeking stability and growth potential (at this price point), the big banks remain a cornerstone in building a diversified and enduring investment portfolio despite everything the media, analysts, and Steve Eisman might say.

Reach out if you have any questions!

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