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Counting the Pennies in Bank Stocks

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Ninety-seven cents.

That's less than the cost of an Apple iTunes download or a McDonald's double-cheeseburger, and would even qualify as bargain territory at Dollar Tree.

What am I talking about? Citigroup's (NYSE: C  ) share price at one point yesterday -- quite a fall from grace for a company that topped Forbes' "Global 2000" list just three years ago.

Truth be told, dipping into penny-stock territory has little real meaning. Other than a psychological threshold, it's irrelevant. Revised rules from the New York Stock Exchange will allow Citi to remain a listed company. Sure, a few investment funds barred from owning penny stocks might have to jump ship, but Citi's 95% plunge in the past year indicates that a lot of them already have.

In any case, the pessimism surrounding bank stocks these days is hardly unreasonable. Wells Fargo (NYSE: WFC  ) tanked yesterday on warnings that it may have its credit rating cut -- an implication that has a real, material impact on its business. (Then again, I don't know why anyone takes the rating agencies seriously anymore.)

Of course, Wells Fargo's shares shot up this morning on news of its lowering its dividend by 85%, from $0.34 a share to $0.05 a share. It joined fellow slashers JPMorgan Chase (NYSE: JPM  ) and US Bancorp (NYSE: USB  ) in doing so from a position of relative strength. You know it's tough times when you can improve your stock price by cutting your dividend.

Maybe more eye-opening was an article by Bloomberg putting a new twist on the now-famous tangible common equity ratio. The article shows that both Bank of America (NYSE: BAC  ) and Wells Fargo actually have negative tangible common equity ratios when all assets and liabilities are adjusted to "fair value" using footnote numbers provided in their annual reports.

I don't know how seriously I'd take those figures. You can tweak and torture numbers under a variety of assumptions to fit whatever outcome you're looking for. Still, the takeaway is clear: Bank balance sheets are black boxes of surprises based largely on someone's assumption of value. No one in their right mind knows what "fair value" is. The only side of the balance sheet that has clarity is the liability side, which -- almost any way you spin it -- is quickly in pursuit to surpass the asset side.

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Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Apple is a Motley Fool Stock Advisor recommendation. JPMorgan and US Bancorp are former recommendations of the Income Investor newsletter. The Motley Fool is investors writing for investors.

Read/Post Comments (2) | Recommend This Article (12)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 08, 2009, at 7:52 AM, majordm wrote:

    what do you think is going to happen to the first bank stock that is strong enough NOT to slash its div?


    ps nice 'look the other way' on your penny stock philosophy for citi. impressive.

  • Report this Comment On March 08, 2009, at 11:22 AM, cmfhousel wrote:


    Every major bank has already slashed its dividend.

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Related Tickers

10/21/2016 2:54 PM
C $49.56 Down -0.03 -0.05%
Citigroup CAPS Rating: ***
BAC $16.63 Up +0.07 +0.42%
Bank of America CAPS Rating: ****
JPM $68.45 Up +0.19 +0.28%
JPMorgan Chase CAPS Rating: ****
USB $43.84 Down -0.12 -0.26%
US Bancorp CAPS Rating: ****
WFC $45.20 Up +0.27 +0.59%
Wells Fargo CAPS Rating: ****