Thoughts on banks
Some would say I'm crazy to be even talking about banks right now. However, you know what they say about buying when blood is in the streets.
Creditsights Inc is in the news. They say that they've run the numbers on the banks. If the recession gets even a bit worse, Bank of America, Citigroup and - surprisingly - Wells Fargo will require more capital. This seems reasonable. Wells' capital ratios are thin and it may have bit off more than it could chew.
If unemployment hits 10% (i.e. a much worse recession), then even JP Morgan, Goldman and Morgan Stanley will need additional capital. Superregional banks didn't get themselves in as much trouble as the big national and investment banks did, but under these conditions, Creditsights says that Regions and Suntrust would also need more capital. Needless to say, anyone needing more capital would be subject to increasingly strict requirements. The folks at Goldman and Morgan would have to somehow live without their mammoth bonuses. If Citi or BoA need more money, common shareholders are likely to be wiped out.
Morningstar assesses the state of the superregional banks. They agree that REgions and Suntrust are in rough shape. It looks to them like BB&T and US Bancorp are the strongest of the crop, judging by the banks' Tier 1 ratios, tangible common equity ratios, and nonperforming assets to allowance for loan losses and tangible common equity.
That said, USB is clearly battered. There's a good chance it will have to cut its dividend, since it is on the cusp of eating into its tangible common equity. That would be bad, although not disastrous. BB&T is in marginally better shape, and I think they have a shot at maintaining their dividend. If I were buying one bank today, it would probably be BB&T. They and USB will likely be able to survive the recession and take market share from competitors. However, there's also a good chance that the banking industry will become structurally less profitable after all this shakes out. M* reduced Wells Fargo's moat rating to narrow - Wells is generally considered the best run consumer bank.