With the interest rate spread at 2.56 times the historical average, banks have been handed an increasingly favorable environment to shore up their balance sheets and improve operations, but one-time writedowns and short-term headwinds still have them trading at historic discounts.
With the Fed indicating a favorable spread for the near future, and most of these short-term headwinds almost gone, banks are likely to be strong performers over the next few years. Even with banks claiming that added regulation drags on profits, banks are at such a severe discount to their historic norms that even a return to more modest multiples would result in huge upside.
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The article Why I'm Still Long on Banks originally appeared on Fool.com.
Austin Smith owns shares of Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, and has the following options: short OCT 2012 $33.00 puts on Wells Fargo and short OCT 2012 $36.00 calls on Wells Fargo. Motley Fool newsletter services recommend Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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