Banking, finance, and taxes

Which Bank Stocks Deserve the Rout, Which Are Overreactions

Rafi Farber

Published: March 2, 2016 10:50 am

Last Updated: January 13, 2020 12:28 pm

Bank stocks are in panic mode again. Given that the financial sector is the most interconnected and interdependent of any in the world, it makes sense that when one bank falls, others fall with it, regardless of which banks are actually exposed to the most troubled sectors. The collapse of the energy sector has investors worried that credit exposure to the energy sector could lead to a repeat of 2008 when real estate exposure caused a systemic banking collapse. But is that really the case?

Of the four largest banks by assets in the United States, Bank of America Corp (NYSE: BAC) and Citigroup Inc. (NYSE: C) are down the most year-to-date at over 20%. Wells Fargo & Co. (NYSE: WFC) and JPMorgan Chase & Co. (NYSE: JPM) are both down just over 10%. First of all, is this even close to a repeat of 2008, and second, which moves down since the beginning of the year are more justified fundamentally, and which are overreactions?

Let’s take a look by the numbers. All figures are taken from annual reports of respective years for each bank.

JPMorgan

JPMorgan has a total loan portfolio of $837.3 billion. Total credit exposure to oil and gas is seventh on the list of exposure by industry, totaling $42.1 billion. That’s 5% of its total loan exposure. Real estate is number one at $116.9 billion, or 14%.

At the end of 2007, JPMorgan had total credit exposure of $142 billion to real estate plus banks plus asset managers, which are all layered on top of one another (see page 78) so we can combine them, give or take a few billion. The total loan portfolio back then was $632 billion, making total exposure to real estate both directly and through banks about 22%. That’s a far cry from the 5% exposure to oil and gas today, or slightly higher than 5% if we count a portion of today’s banking loans. How does that compare to the other money centers?

24/7 Wall St.
Why Warren Buffett Loves Big Stock Buybacks