good banks, really bad banks and tangible book value

i am now convinced that banks are on their way to bottoming somewhere around tangible book value, a process that continued today as banks (and everything else) sold off rather viciously.

i also think the market's being ridiculous, on its way to valuing banks so cheaply, but hey, the market doesn't give a darn what i think is correct.

that stated, this makes me think that we're not that far away from a bottom in banks that is akin to what i argue we have in retail. i see retail in general as having made a hard bottom on the current fundamentals (which could change, but this is what they are for now). if you're sharp (sharper than me i'm afraid), one can find retailers that have upside either due to the fact that they're taking share or they're cutting costs or both. one can also find retailers with downside, too - see my comments on shld.

anyway, i think the market thinks we need to get down close to tangible book value (say 1.0 to 1.3 depending on the bank) because so many of the worst offenders in terms of tossing loan standards out the window are also the same banks that paid too much for other banks that also tossed loan standards out the window. the market is going to write off the goodwill from these ill-fated purchases even if management won't. (the older the acquisition(s) the more likely it was rational and the less likely this applies.)

if banks as a group can get down to a low multiple of tangible book i think we can have a good bank, bad bank dichotomy. however, i'll amend that to a trichotomy of good banks, bad banks and ugly banks. once everything is cheap enough to discount the uncertainty value investors will come in anew and this time they will find enough good apples to buy that it is worth their while and banks as a group will no longer be a group sell. as we sort through for the winners, we can ignore the bad ones and especially ignore the ugly ones; that is, banks destined to trade well below tbv and in need of major recapitalization or being wiped out.

this continued sell-off in the banks, irrational as i think it is, is an important part of the process of moving us on.

long shld puts