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Stock Strategist Industry Reports

Through the Banking Fire

Our take on the top four U.S. banks' efforts to combat the crisis and who will ultimately come out the winner.

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Second-quarter earnings are in and each of the top four U.S. banks showed profits. But, looking beyond the bottom line, the second quarter told a different story for each bank, putting in sharp relief which of the Big Four are struggling and which are actually taking advantage of this market. While none of the top four are currently at a 5-star price, the better banks are actually trading at larger discounts to our fair values--potentially giving the watchful investor an opportunity to get into the superior banks for bargain prices.

Each company benefited from some second-quarter tail winds. The capital markets, especially in equity issuance, were livelier than they have been for quite some time. Low interest rates sparked a mortgage refinance wave. Consumers continued to fear the equity markets, opting to put their money into low-yield deposits accounts, helping banks lower the cost of funding. On the other hand, consumer credit is still deteriorating--although most mentioned an improvement in early delinquencies that suggests we might be getting nearer a peak in consumer losses. Commercial credit losses are starting to become more meaningful and these losses are likely to grow in the coming quarters.

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Jaime Peters does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.