As the American mortgage downturn continues to put pressure on housing lenders and other financial institutions, many investors are attempting to predict a bottom for related stocks. While the prospect of acquiring real estate or banking shares at bargain-basement prices is tantalizing, Phillip Van Doorn, senior analyst for The Street.com, warns against any rash decision-making.
In a Merrill Lynch sector report released on Friday (June 20th), earnings estimates and price targets for twelve of the country’s largest regional banks were lowered significantly. Other foreboding developments occurred last week as well, including the Federal Deposit Insurance Corp.’s issuance of stringent new regulations placed on large banks pertaining to the maintenance of customer information and deposit account records. These new rules have been put in place to assist the agency in identifying which deposits are insurable, should a massive bank failure occur. Many people are viewing this action as indicative of continued hardship in the sector.
It is true that several financial institutions have already experienced record losses, however, it is widely agreed that a bottom on home prices and bank stocks has yet to be reached. Phillip Van Doorn’s assessment of the current trouble cites quarterly provisions for loan losses as one of the primary causes of depreciating bank earnings. According to Mr. Van Doorn, “Even if we are close to the bottom, total loan delinquency numbers are likely to continue increasing through the end of 2008.”
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