Paul Kedrosky over at Infectious Greed has an interesting chart from Bloomberg:
Writes Paul:As evidenced by the subsequent performance of Goldman Sachs’ and Barclays’ shares, that whole Lehman world-is-ending thing never happened. Then again, there is no recovery (yet) for BofA or Citi.The way we look at things though, the post-Lehman share price collapses – at least at first – were really a function of fears of further full-blown bank collapses. In other words, JPM, Barc, GS and MS have now bounced bank to their pre-Lehman levels because, logically enough, no-one now thinks that those banks are going to be going to the wall anytime soon. (Citi and BofA, not so much.)That said, is there also a chance that the rallying banks – GS, Barc, MS, JPM – are now overvalued? Have the ibanks overshot their retracement of the catastrophe discount?Sure, all four might be poised to start re-reaping profits again (some, like Barclays, have been aggressively expanding their i-bank ops of late) but with things in the housing market and economy at large far from clear, those profits might be short-lived and small. Banks’ margins will be under intense pressure over the coming quarters and the deleveraging process has a way to go yet.
Not to mention the fact that there is absolutely no sign of a return to the kind of frothing conditions that so favoured the great bloating of the investment banks in 2007: there is no sign of an M&A boom; no sign of securitisation; no sign of structured finance; no sign of hedge-fund releveraging and perhaps most crucially of all, no sign of a resurrection of that once great i-bank profit powerhouse, the prop desk.
All of which isn’t to say those things won’t one day make a re-appearence – just not yet.
It might well be worth taking a leaf from the Abu Dhabi royal family: sell out of this i-bank rally now, before it breaks.