Below is a fabulous article that was in the Wall Street Journal outlining why banks are extremely attractive investment right now, especially in relation to something like Commercial Real Estate. Much of this is due to the greatly distorted political environment in which the banks are still vilified for the Financial Crisis that ended 7 years ago, and that was caused by far more participants than just the banks. The below table shows the decrease in the cap rate returns provided through commercial real estate investments, versus the increasing total cash returns that the banks are providing to investors. The banking industry led all industries in terms of dividend rate increases last year, and this situation should continue to improve dramatically over the next several years, as two of the heavyweights, Bank of America and Citigroup are finally in a position to substantially increase returns to shareholders’.
Current prices that the banks trade at just do not make sense. They are far safer than they have been in decades, with double the capital and double the liquidity. They could easily survive a severe recession and improved efficiency should lead to earnings growth over the next 3 years, even if we assume a rather lackluster economy. I would and am betting a substantial amount of money that the current valuations will not last. This is why the opportunity is so great. All of the facts are in our favor and in the end it is the facts that matter in investing. I would have loved to paste the whole article but I’m not able to, but hopefully you can read it by clicking on the below link:
Distorted Markets: Why Banks Are Better Off Than You Think, And Real Estate Isn’t