Bank valuations stuck at 2009 lows, showing no recovery

Valuations for US financial stocks have fallen so far, it’s like the rebound from the worst crisis since the 1930s never happened.

Banks, insurers and asset managers in the Standard & Poor’s 500 Index trade at 12.3 times estimated earnings, close to the lowest level since the bull market began in March 2009, according to data compiled by Bloomberg. The group is the second-cheapest among 10 industries in the gauge even as analysts say profits will rise 18 per cent this year, exceeding the S&P 500, data compiled by Bloomberg show.

While the biggest equity rally in more than five decades has lifted the S&P 500 above its level when Lehman Brothers Holdings Inc collapsed in September 2008, the failure of price- earnings ratios to widen is a sign to Pioneer Investments and Gamco Investors Inc that gains in banks may end when government stimulus ends. Bulls such as OppenheimerFunds Inc. say forecasts for a three-year economic expansion mean the stocks will prove bargains as earnings and dividends increase.

“It may be awhile before investors feel comfortable paying above-average multiples for financial companies,” said John Carey, a Boston-based money manager at Pioneer Investments, which oversees about $250 billion. “What everyone is waiting for is a sign that the companies are really back, that they’re really on their feet again and can survive without continued government support and subsidy.”

The biggest yearly increase in US retail sales since 1999 and higher-than-estimated industrial production show the US expansion is gaining momentum. The Commerce Department may say on January 28 that GDP rose at an annual rate of 3.5 per cent in the fourth quarter.