Bank stocks: The bearish case for the financial sector

Whalen Global Advisors Chairman Chris Whalen sits down with Myles Udland on Market Domination to share his investing perspective on the banking sector and the conditions these financial stocks would have to be in for Wall Street to retreat from the sector.

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Video Transcript

00:00 Speaker A

Now, you mentioned uh Western Alliance and and the regionals and we had um or we've had a lot of conversations here around the potential for uh bank M&A, more bank M&A, even larger firms getting involved. How have you thought through the potential there, things you've mapped out, um just how big these firms may end up going with the ability to finally do deals after, you know, 10, 15 years?

00:27 Speaker B

Well, we have been seeing deals nonetheless. The the key thing is, you know, does the target make sense? So, you know, in in most cases, the deals we've seen over the last year or two, they've really overpaid to me. I'm much more of a fundamentalist. If I see somebody paying two or three times book for a bank, then I know they're not going to get their money back. It's just basic arithmetic. But I think yes, as if bank stocks retreat, and I think they will. I think we're looking at a peak right now because April they bottommed out. That's when I told my guys to get in. And by August it was time to get out again. So now the question is, do we stay in? I think not. I think the large caps are going to give ground. The story stocks, the Sofi, the lending clubs, they're still going to be I think viable. But I think you're going to look for the the increase in credit cost, perhaps in the third quarter and the fourth quarter. If we start to see that, then I think the street's going to retreat from the banks because you know, we've had a benign year. We've had credit costs falling since last year. Remember, we were talking about a recession. No recession.

01:40 Speaker A

Not going your way for the last couple of years.

01:42 Speaker B

No, exactly. But other than the commercial side of the ledger, commercial real estate, multi-family real estate, even, you know, the credit sector too has been mixed and the banks are hiding a lot of it. They're using forbearance. They don't want the building. They're going to keep the tenant in the building. So that kind of behavior, also some changes in accounting presentation for restructured loans makes the banks look better than they really are. Related Videos

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