The Banksters Are Back

It should come as no surprise that a guy from New York City, who has run a major global real estate development business, knows more than a few well-placed bankers.

And when that guy becomes president of the United States, it’s his chance to give them their due.

Now, before you get your hackles up, this isn’t a Trump-bashing piece. All presidents come to Washington and end up helping their state’s businesses. Reagan’s defense and anti-ballistic missile defense system build up helped many of the aerospace companies and computer firms in his home state of California.

Clinton helped make Tyson Foods one of the biggest chicken producers in the world. And Wal-mart was also a big beneficiary of Clinton largesse.

So it comes as no surprise that Wall Street has unpacked its bags on Pennsylvania Avenue. Like the former CIO of Goldman Sachs as Treasury secretary.

Lose the middlemen

Still in denial about the bankers having a heyday in D.C. as well as NYC?

Here are the six-month returns of some of the top banksters that ushered in the financial crisis and were bailed out by you and me:

• Goldman Sachs: 44 percent
• JPMorgan Chase: 34 percent
• Wells Fargo: 27 percent
• Morgan Stanley: 36 percent
• Citigroup: 29 percent
• The S&P 500: 9 percent

These big banks have outperformed the broad market three to five fold since the election. And it’s no coincidence.

But this isn’t about morality. It’s about business. Actually, I’m kind of glad we’ve gotten rid of some of the ossified political hacks that were the middlemen for their corporate overlords and now we’re dealing directly with the overlords. At least it’s a change of pace.

Investing is about performance. It’s about understanding what’s happening, regardless of your politics or desires and objectively observing what is going on. And then finding the opportunity there.

That’s what I’m doing here.

Do I like the debt-driven culture these banks have promoted? No.

Are they a buying opportunity? Yes. But I think there is a better place to go with your investment dollars in this sector.

Regional banks.

Why regional banks?

Because now that the banks are on their feet again and regulations will be in limbo for years to come, they have the chance to start blowing up the next big bubble. And I’m guessing that will be consolidating all the healthy, conservative regional and local banks.

You see, the smaller banks weren’t the ones that caused the financial meltdown. They weren’t the ones lending to credit risks on one side of the trade while bundling those risks, selling them off and then shorting them on the other.

Regional banks lend to local businesses, homeowners and individuals. They don’t have an arbitrage desk or a trading division. They make money the old way — pennies on the dollar, over and over again.

For the “banksters,” as Bob Livingston calls them, they represent piggy banks full of responsible cash that will help their balance sheets (and stocks). It will also help the big boys leverage those assets into more trading money for their institutional side.

Remember, the big banks cut their trading operations significantly once the bottom fell out of the global economy. But those days are gone and it’s back to business as usual, better business than usual.

This is also a great opportunity to consolidate the banking landscape. If they gobble up enough smaller players around the country, they also rebuild their Too Big To Fail size while also becoming major players in small towns and big cities across America.

Think about it like the auto industry. Here is a list of the defunct car companies in the U.S. that have been culled into the Big Three.

Top targets

Before I get to my investment picks, I want to say that the biggest statement you can make against the banksters is to move your business to smaller banks. I stopped using big banks decades ago and I have never felt cheated at keeping them as far away from my money as possible.

Two other attractive qualities to regional bank stocks:

1. Even if they’re not acquired, they’re still the best way to invest in the financial sector in the long term.
2. If they are bought out, they will command big premiums, meaning big payoffs for investors.

Without further ado, four solid stocks to look at are, BB&T, Fifth Third Bancorp, U.S. Bancorp and Burke & Herbert Bank and Trust.

All these are rock-solid regional banks that will prosper on their own or profit handsomely from any takeover.

— GS Early

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