3 Mistakes for Bank Investors to Avoid in 2013
Jan 14th 2013 2:23PM
Updated Jan 14th 2013 3:45PM
If you're like most people, you've already broken most of the New Year's resolutions you so sincerely made on January 1. But if that desire to dry out has already fallen victim to the resumption of workmates' debilitating happy hours, your commitment to Zen has lost its zest, or your pack-a-day habit just can't seem to get by without you, that's OK. Have another beer, cigarette, or tantrum. It's fine with me.
What I'm far more concerned about, fellow Fools, is that in 2013, you don't repeat some of the same investing mistakes I made or witnessed in 2012. So belly up to the bar, and prepare to be illuminated -- or at least dragged kicking and screaming out of the dark, as I so often am.
1. Don't ignore regional banks
It's very easy to get overly focused on the big banks. I know I do. There's no surprise why: Being big, they're often in the news, grabbing the headlines either for good or for bad.
When Wells Fargo reports that net profits are up by 24% (which they were for fourth quarter 2012) , or JPMorgan Chase announces a more than $6 billion dollar loss due to a derivatives bet gone horribly wrong (aka, the London Whale), it makes the front page, at least in the business section.
And Bank of America was 2012's best-performing financials stock in 2012, more than doubling in value, so I'm not saying big banks should be ignored. But did you know that Regions Financial was the second best performing financial stock of 2012? Who would have thought to look to an Alabama-based bank , with assets of just $122 million , for 63% growth in a year's time ? Not me, apparently.
2. Don't ignore foreign banks, particularly the Canadian ones
It's also very easy to get overly focused on American banks. No surprise there, either. The news we read is focused on domestic banks, and there's a case to be made for investing in your home country, where you're more likely to be familiar with the political and judicial environment as well as the general financial culture.
But while American banks are still working through fallout from the financial crisis, waiting for various shoes of a regulatory or litigious nature to drop, consider this: Canada had no financial crisis. Well, it had a mild one, but none of its banks went, well, bankrupt. And economic growth returned more quickly than here in the U.S. One of the reasons for this is, its banks are much more heavily regulated than ours, which also might be one of the reasons its banks have had such a good year.
Royal Bank of Canada , for example, has been going gangbusters. Its stock is up more than 21% over the past year , it has a return on equity of more than 17%, and it had earnings of more than 22% last quarter . The Bank of Nova Scotia is another north-of-the-border banking winner. It's stock is up 15% over the past year , it also has a return on equity of more than 17%, and it had earnings growth of 29% last quarter. Pretty good, eh?
3. Don't ignore leadership
After reading a recent column of mine about JPMorgan Chase CEO Jamie Dimon, my sister-in-law, who's considerably younger than me, called me a Jamie Dimon "fanboy," a term that became part of the popular lexicon long after I lost awareness of goings-on in the popular lexicon.
And while I take issue with the term "fanboy," because I think it implies I'm not impartial when it comes to writing about JPMorgan, I cannot tell a lie: I'm a big fan of the superbank's tough-talking, mince-no-words CEO, and not just because he has such fabulous hair. He does, but Dimon has also seen JPMorgan Chase through some genuinely tough times -- two in particular -- and the bank has come out the other side not just bigger, but also better. I believe this is due in no small part to his leadership.
While many other big banks lost their managerial minds and corporate souls -- and some, ultimately, their solvency -- in the years leading up to the financial crash, JPMorgan stayed largely away from the excesses of an era dominated by subprime-lending and credit-default-swap mania. Dimon is a control freak from way back, and he put on the profit-at-all-costs brakes when other CEOs were stepping on the gas. As a result, JPMorgan came out of the crash in far better shape than many of its jumbo-sized peers, including B of A and Citigroup.
And just last year, in the wake of the London Whale trading debacle, Dimon masterfully unwound what could have been a much more costly botched trade -- losing only $6 billion on a $100 billion derivatives bet -- and then doubled down on risk across the bank, which included an extensive shakeup of management. The person at the top matters, just ask the former employees of Lehman Brothers, whose profit-at-all-costs CEO Dick Fuld over-invested and over-leveraged the bank quite literally to death.
Final Foolish thought
I wouldn't dare judge any of you, my fellow Fools, on broken New Year's resolutions, but I will advise you tuck these three bank investing don'ts somewhere into the back of your brain for eventual use in 2013. I should do the same, though -- just like with any initially well-intentioned life declaration -- there's no guarantee I actually will.
Since I'm already gushing on Jamie Dimon and JPMorgan Chase, I might as well continue, and give you a heads-up on a new Motley Fool report on the man and his organization. You'll learn where the key opportunities for JPMorgan Chase lie, where its core growth will come from, the potential business risks, and an analysis of its leadership team. With a P/E of just under 10, JPMorgan Chase is one of the great banking bargains out there. For instant access click here now.
The article 3 Mistakes for Bank Investors to Avoid in 2013 originally appeared on Fool.com.Fool contributor John Grgurich owns no shares of any of the companies mentioned in this column. Follow John's dispatches from the bleeding heart of capitalism on Twitter @TMFGrgurich . The Motley Fool recommends The Bank of Nova Scotia (USA) and Wells Fargo. The Motley Fool owns shares of Bank of America and Wells Fargo. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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