On paper, the nation’s banks are making a comeback: More money is being set aside in case of trouble, there are fewer losses on loans and there is less reliance on volatile funding.
Too bad the markets don’t seem to care.
Despite the strides banks have made to repair their balance sheets since the financial crisis, their stocks are trading below book value. Wall Street remains skeptical about the overall health of these institutions, even as profits have soared in the past year.
“Investors expect more losses ahead,” said Mark Williams, a former bank examiner who teaches finance at Boston University. “Many of these banks still have loans that could go bad if the economy goes south.”
Bank stocks, he noted, have increased in recent months but remain 50 percent below their 2007 pre-crisis peak. Investors appear weary of the regulatory risks still facing banks, wondering how aggressively Dodd-Frank financial reform will be enforced and what impact it will have on profit margins. And a growing chorus from Congress and regulators that large banks should be broken into smaller institutions is adding to the uncertainty.