Do Hedge Funds Have It Right on Bank Shares?
June 1st, 2010Is now the time to buy bank stocks? Many are earning money, look well capitalized and have reported three consecutive quarters of declining loan losses. Yet the sell-off of the last six weeks has lopped up to a fifth off the value of large and regional players alike, pushing even strongholds like JPMorgan back to book value or below. That ought to make them a bargain, Breakingviews says. Some sharp investors seem to think so. William A. Ackman, who runs the hedge fund Pershing Square Capital Management, recently bought 150 million shares of Citigroup. David Tepper of Appaloosa Management likes Bank of America, as does another hedge fund manager, John Paulson, who increased his stake in the lender by 11 percent in the first quarter. He told his own investors late last year the stock could hit almost $30 a share — virtually double today’s price. That’s certainly possible for Bank of America, while some of its rivals could get pretty close, Breakingviews suggests. In addition, pretax, preprovision earnings — one of the metrics used to judge banks’ health in last year’s stress tests — would not even have to grow from current levels. http://htxt.it/hIHH
