Financial stocks are not for the faint of heart, said Norm Alster in The New York Times. Indeed, in light of the “near collapse of Bear Stearns, a stream of enormous write-offs by banks, and the freezing of a large portion of the credit markets,” many investors are running from them. But some intrepid investors see value in those bloody waters, particularly among regional banks that “stuck to conservative standards that now position them to gather capital at low rates and lend it locally to the worthiest borrowers.” The Federal Reserve’s string of rate cuts is beneficial to banks that follow the borrow-low, lend-high mantra. “The Fed is just throwing free money out there,” says Anton Schutz, manager of the Burnham Financial Services and Burnham Financial Industries funds. “It’s fantastic.”
But the long-term outlook for most financials is hardly rosy, said Tom Lauricella in The Wall Street Journal. Even if financial services companies make it through the credit crisis intact, the sector “faces a business environment unlike anything it has seen in more than a decade.” During the housing boom, they drew much of their income from mortgage originations, loan servicing fees, and home-equity fees. Now, according to David Kostin, market strategist at Goldman Sachs, “the earnings power of financials has been bruised and the question is: How fast can it come back?”
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