NEW YORK - The largest financial institutions in the United States have foregone a three day rally where the six largest banks in the U.S. have rallied over 10%. Wells Fargo the fourth largest bank in the U.S. is up 13% since Tuesday. Despite these gains U.S. Banks remain cheap. ICICI Bank of India trades at one fourth the valuation of Bank of America despite having large contingent liabilities and being one twentieth the size. It also trades higher than PNC Financial which is double the size. The valuation simply did not make sense and the banks are undergoing a large and dramatic revaluation.
The prices of stocks are often shaped by large institutions, who often invest by the flavor of the month and this caused some financial institutions to be valued at extremely depressed or impossible levels. The second reason the banks traded lower was due to the Obama administration, who constantly blamed the banks for the financial crisis. With the Republicans winning in a landslide over the Democrats it has given assurance to bankers that there will not be extra punitive for the purpose of making punitive measures. Lastly, because of this election win, banks are likely to be able to pay dividends again due to a more forgiving but stronger government.
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