2010 has been a year dominated by draining headlines for the financial sector including worries over mortgage putbacks, new regulations through Dodd-Frank and Basel III, as well as general uncertainties about the economic outlook.
Industry stocks have took a beating as a result, and the XLF banking sector ETF is lagging behind the S&P 500, only up 4.48% in 2010.
2011 looks to be another bumpy year for the industry, but Morgan Stanley feel there are some clear bright spots out there. Concerns in Europe and worries over regulation may haunt developed markets, but EM holds some hope.
Right now, the level of uncertainty around regulation is keeping bank valuations low. But prices are likely to rise in 2011 as a result of the realities of Dodd-Frank and Basel III sinking in.
Bank of America and JP Morgan not yet making the Basel III cut, which is having an impact on their stock prices.
But credit improvement changes that completely, and if the economy improves in 2011, bank shares could too.
Banks are now loosening lending standards, which could stimulate earnings (but is credit demand really there?).
In the eurozone, a lot of turnover in bank senior debt could make credit markets ugly and create more worries for its smaller banks.
There's been a clear move positive for Spain as far as bank support (but will it last if real estate crisis persists?).
But Asian banks are no sure thing. Serious threats to earnings in the region might emerge as new tightening measures are put in place.
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