A Bullish January for Big Banks

Last year treated the big banks badly. Of the seven largest banks, the best returner was only slightly positive for the year (after dividends):

Bank Name

2011 Return

US Bancorp (NYS: USB)


Wells Fargo (NYS: WFC)


JPMorgan Chase (NYS: JPM)


Morgan Stanley


Citigroup (NYS: C)


Goldman Sachs


Bank of America (NYS: BAC)


Source: S&P Capital IQ. Return includes dividends.

January has been more kind to all stocks, with the S&P 500 up almost 5%. But the performance of the big banks dwarfs that gain:

Bank Name

January Return

US Bancorp


Wells Fargo


JPMorgan Chase


Morgan Stanley




Goldman Sachs


Bank of America


Source: S&P Capital IQ. Return includes dividends.

Perhaps not surprisingly, the worst performers of 2011 generally rebounded more than the best performers of 2011. Lower bases and diminished expectations have a way of doing that.

The financial crisis has turned the should-be-staid banking world into a high-beta sector. In other words, the largest banks have been much more volatile than the market in recent years. As dividends have been lowered and securities portfolios questioned, these banks have been viewed less like financial utilities and more like gambles on the economy as a whole.

And so it is that the big bank stocks whipsaw with the daily news.

Versus a month ago, not a heck of a lot has changed. There's still uncertainty in Europe and the housing market. And litigation still looms regarding mortgages and foreclosures.

The banks did report earnings and in general showed some positive loan growth. And you wouldn't know it from the share-price gains (the purest regular banks, Wells and U.S. Bancorp, gained the least), but regular banking operations fared better than investment banking operations.

But remember, stocks move on changes in expectations. When you're priced for Armageddon, the rising of the sun boosts shares. See Bank of America's 27.2% gain.

That's where we are in banking. We'll see what February brings.

If you're looking for more banking ideas, there's one small bank that's flying under the radar. It has some of the best operational numbers you'll ever see. The Motley Fool featured it in its brand new free report: "The Stocks Only the Smartest Investors Are Buying." We invite you to download a free copy.

Editor's Note: A previous version of this article misstated 2011 returns. The Motley Fool regrets the error.

At the time thisarticle was published Anand Chokkaveluowns shares of Wells Fargo, JPMorgan Chase, Citigroup, and Bank of America. He owns warrants in Wells Fargo, JPMorgan Chase, and Citigroup and long-dated options in Bank of America.The Motley Fool owns shares of Wells Fargo, JPMorgan Chase, Bank of America, and Citigroup and has created a covered strangle position on Wells Fargo.Motley Fool newsletter serviceshave recommended buying shares of Goldman Sachs. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.