Hi, stock markets did impressive reversal last week. It was fueled by strong earnings reported by big US banks. It is not very big surprise for me. FED and US govt did a lot to make generation of profit for bank as easier as possible.

FED funds rate is practically zero. Profit margin for loans and for other business of banks is wide  and allows to generate big profits.

Also change in accounting based on cancelling necessity of mark-to-market rules eased stress in bank's books.

All these info leaded to rally on markets. But every investor should be very careful. It does not mean that banks and financial sector is now good investment opportunity. There are a lot of bad loans and other assets which can be found as "toxic" soon.

Also banks will change dividend policy. Big dividends for shareholders are forgotten and will not return soon. And also governments are big shareholder in these companies. And we all know that they will want to be influential in major banks decision. And political decisions are often not the best for the business

Finally - bank sector in Europe is still not in good situation. It is in worse shape than banks in US or UK.  And European authorities are trying to leave it alone. Such stance could lead to big problems in banking sector again.

Happy trading, 

Richard Koza
portfolio manager
ATWEL International

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