Bank analysts are never privy to inside banking operations. Example: complicated derivative portfolio information, or “repo” positions. In fact, they know little of the plain-vanilla type. And if they were privy, they could not understand the inherent complexities.
Yet every negative word they can utter can doom the soundest financial institution, to the point where that organization sinks towards insolvency.
Rumors are often circulated about banks, fomented by bank analysts who cannot possibly see a bank’s asset portfolio. That makes for self-fulfilling events. Especially when bank holdings must then be marked-to-market.
Fear-frenzy takes hold as analysts persist in this self-fulfilling bearish sentiment.
There was a time when bank stocks were bought on the basis of book value, which can now be suspect, and dividends, which these days have been curtailed by governmental regulation.
Then the question arises of how secure is each bank’s capital, in our fragile economy?
Another reason why I believe in index funds. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)
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