Nearly five years after the financial crisis almost destroyed the entire Wall Street edifice, major investment and commercial banks are now seeing their stocks rebound sharply and earnings improve dramatically.
Data from the Federal Deposit Insurance Corp. shows that in 2012, the U.S. banking industry turned in its highest overall earnings since before the 2007-2009 financial crisis – a record $141.3 billion.
And as the table below illustrates, the earnings power of big name banks that now function under major U.S. financial reforms is also reflected in their share price appreciation.
Covestor manager Andy Schornack, who managers the Financial Services model, also sees value in regional banks. Check out his latest analysis.
So if everything’s now so rosy, why are so many banks – from Citibank (C) to JPMorgan Chase (JPM) – still laying off so many employees? The short answer is that big chunks of the global economy are over-banked and major firms are rethinking every facet of their business strategy, looking to squeeze out more efficiency in more austere times. Here are five data points that shed some light on the trend:
1) Some 40 investment banks around the world tracked by Bloomberg Industries announced cutbacks in 2012 – involving more than 68,000 jobs.
2) This year the nine largest global investment banks, ranging from the Bank of America (BAC) to Goldman Sachs (GS), have announced more than 30,000 additional job cuts, according to Bloomberg.
3) Million dollar traders are getting displaced by automated stock and option trading programs and services. Equity trading departments are among the worst hit in the current wave of downsizing.
4) According to a survey by Ernst & Young, the value of global merger and acquisitions in 2012 was down almost half – 47% – from 2007, a year that saw $4.3 trillion worth of deals take place.
5) Equity trading volume is falling falling worldwide. In 2012, the volume of trade in companies on U.S. exchanges fell 18%. Trading volume of Hong Kong Hang Seng Index companies fell 13% last year; the Stoxx Europe 600 Index members fell 11%.
Such are the tough business conditions the lords of global finance confront these days.
