Tuesday, November 06, 2007

Decide you must how to serve them best

An Open Letter to Publicly Held Bank CEOs, Boards, and Shareholders:

2007 has certainly been a trying time for banks. Many of the business lines which had generated large fees in recent years, such as subprime lending, structured investment vehicles, private equity bridge loans, collateralized debt obligations, etc., have resulted in banks suffering large losses.

There are many questions now being asked by bank shareholders. Where were the risk controls? Should banks have seen subprime problems coming? How did banks become so sanguine about ever increasing leverage? These are fair and important questions. But the key question for bank shareholders looking forward is how to best position for profit growth in the future.

Unfortunately, with banks suffering such large losses in recent quarters, bank capital has come under pressure. Bank liquidity overall has diminished. Many bank assets which previously could have been securitized to raise capital if needed, would now either be impossible or costly to liquidate.

Despite all the problems banks are currently facing, we know the U.S. economy is amazingly dynamic. We know that at some point in the future, demand for fee generating bank products will rebound. Even subprime lending will likely be an attractive business again at some point in the future. Many marginal banks and/or other providers of capital, have exited the market. Some due to bankruptcy and others by choice. This leaves the surviving banks with better pricing power and/or ability to dictate lending terms. Overall, the long-term prospects for banks should be quite positive.

However, in order to realize this long-term opportunities, banks must find a way to survive the current contagion with as much capital preserved as possible. Long-term shareholders appreciate this need for capital preservation. It would not serve shareholders interests to sell assets at fire-sale levels to raise capital. Nor would shareholders benefit from a bank being forced to issue new equity shares, particularly at a time when equity prices are weak.

There is one obvious way for banks to retain more capital: eliminate the dividend. Large publicly traded banks all pay handsome dividends. In many cases, the dividend is a sizable percentage of the bank's regulatory capital, and retention of the dividend could make a significant difference in the bank's liquidity in a time when liquidity is dear.

Of course, bank CEOs are loathe to cut their dividend as this would likely cause their stock to decline. But if the bank were operated with long-term profits as their goal, much like a private company is run, a temporary suspension of the dividend would be an obvious choice. Investors in a private company would never choose a small cash payout at the expense of much greater long-term profit potential.

What if a major bank CEO were to announce to shareholders that dividends for the next 4 quarters would be suspended, but not eliminated? The bank could pledge to pay out the missed dividend payments at the end of the 4th quarter if the liquidity situation has improved.

Of course, the first bank to make this move would likely scare the market into thinking the bank had an imminent cash crunch. But if the bank was able to prove that this was indeed not the case, and that accruing the next year's worth of dividends was merely the best way to manage regulatory capital, the market for the bank's shares would improve. Indeed, I am confident that the bank that shows a willingness to use all possible avenues to retain capital will eventually be rewarded with a stronger stock price.

Would any bank CEO be willing to withstand the avalanche of criticism this move would entail? Particularly those who may already be under pressure because of recent losses? Difficult to say. But if any bank continues to pay its dividend and later finds themselves in a capital crunch, it will be clear that its CEO was trying to manage with a short-term and not a long-term horizon.

Shareholders should start demanding banks explain their capital preservation strategy now, particularly if the bank insists on maintaining its dividend. Perhaps this will give some CEOs the flexibility to use their dividend policy in a way which maximizes long-term profits.


Accrued Interest


the cds trader said...

great post.

completely agree, if I was CEO of a bank I would do exactly that, although AFTER talking to my largest shareholders to explain exactly the strategy first...you'd have to be careful how you do it in order not to crush your credit spreads (remember a lot of subordinated debt has coupon payments where the bank has the option to miss payments when equity dividends is not paid, so tier 1 debt etc could get crushed due to investor nervousness, have seen that before with banks in trouble that eliminated divi's).

although thinking further, if I was CEO of this bank and had the "usual" 200 million dollar golden parachute, maybe i would just run it into the ground and collect my payout when i get canned...

gramps said...

AI -- cutting the dividend might delay the inevitable, but these companies are ruined, probably for good.

Go back in the history of Wall St: Banker's Trust, Salomon Bros, White & Co, Paine Webber, Shearson -- without even trying you can list a number of former industry titans that no longer exist. I am sure you can make a different excuse for each one, but they have something in common.

The culture, which includes the institutionalized knowledge of the firm, was destroyed first. Once that happened, an "unforeseeable crisis" was only a matter of time.

While the M&A guys Weill & Prince bought and sold various companies, they paid themselves literally billions. The culture of the original companies was destroyed, and all the propaganda not withstanding, nothing took its place. In other words, the companies' balance sheets might have merged, but the true profit engines did not.

Chuck Prince was a lawyer, not a banker. Since Weill was forced out after a series of ethics issues, one might argue Prince wasn't a very good at keeping his client out of trouble-- but the point remains he was a lawyer, not a banker.

How many Citi shareholders would hire a plumber to fix an electrical problem? So why on Earth did you hire a lawyer to run a bank? Prince wasn't qualified and you all knew it from the get go.

So for all the "grunts" that actually make Citi work-- traders, sales, bank tellers, custodians -- how can you tell them with a straight face that the firm is a meritocracy when the chief so obviously lacks the most basic credentials? And while the traders and salesmen have to "produce" to get paid, this non-banker gets a guaranteed $20 million? How can that not effect moral?

So then this bean counting lawyer goes and lays off people who actually have a banking background, under the guise that he is right sizing costs? How does a lawyer know what is or isnt needed to run a bank? He doesn't. Turns out he trimmed the risk management areas, because lets face it: that's a cost center.

Citi is a conglomorate, and will sooner or later meet the same fate as every 1970s conglomorate. If you are a good manager of an investment bank, it does not follow that you know anything about running a retail bank or an insurance company.

Failure to understand the corporate culture needed to make these businesses successful is why Sandy Weill and Chuck Prince were doomed from the start.

Weill made out with over a billion dollars. Prince walks away with tens of millions (as CEO, more earlier). The institutions that actually produced economic profits (and not accounting profits) have been destroyed.

Cutting the dividend won't create a corporate culture. You are putting bubble gum on a sinking ship.

gramps said...

AI -- I should have mentioned that I generally agreed with your post.

And it should be mentioned that as all those former wall st titans of industry collapsed under bad management... other smaller shops (often started by more competent underlings at the failing titans) took their place.

Citi is ruined, dividend or not. It will get split into parts, and those parts may or may not survive. But the talent will walk out the door and start their own shop -- I doubt Prince's golden parachute will do anything to stop them from leaving.

psychodave said...

@gramps Enjoyed your comments.

Are you saying any retained earnings, not distributed as dividends to shareholders, would only end up in the pockets of looting management practising "primitive capital accumulation"?

"meet the same fate as every 1970s conglomorate"
Given the breadth of your knowledge and experience, whats your take on Berkshire Hathaway?

Sivaram Velauthapillai said...

Let me take a contrarian view from the gloomish views here. What is happening isn't as disastrous as it seems. Some companies will struggle but most will just go on, after taking some losses. Everyone loves to pretend that Citigroup is a disaster but the fact of the matter is that became the largest bank at one time. Just like how some are calling for HSBC to be broken up, even though HSBC is doing very well, the Citigroup critics will probably dissapear in 2 years.

As far as cutting the dividend is concerned, I'm not sure it is worth it. Companies should preserve capital (and lay off their expansionary plans for a while) but I'm not sure the dividend is going to do much. The really desperate ones will have to cut but I'm not sure if others should.

The pricing signal of a dividend is far more powerful than the money that is saved. The market is going to clobber any company that basically writes off its near-term future.

(diclosure: I don't own stocks of any company in question. I'm looking at some debt insurers.)

gaius marius said...

i agree on dividend elimination for all of the investment banks particularly and citi as well -- but i do think there is a fallacy (or what i see as a fallacy) that has been tenacious in this matter that should be dispelled.

it is that the problem securities should not be sold because they can realize nothing like their true value on the market.

creditsights (here via ft) helped by sinking a dagger into the notion that this is a liquidity event that will pass.

i think it's closer to the truth to say that the banks, in their greed to collect securitization fees, made a lot of loans on which they are in aggregate going to take a horrifying bath because the people they lent to are in large part not going to pay them back. in other words, the event is not a liquidity event but an economic one. and the banks are largely stuck with the loss, whether they take it now or later, unless mother government comes in to wipe the whole mess away.

this isn't an argument to declare citi insolvent (though it and others probably are) and kill it. but i do think we should get on with accepting that the reason for the problems we're seeing isn't irrational fear but a belated return to rationality, and work to preserve the financial system from that point.

Accrued Interest said...

I think most of the big banks and brokers will survive. Perhaps there will be some mergers at unfavorable prices. I think most of the brokerages gramps mentioned didn't wind up in BK. Most hit hard times and then were gobbled up by some stronger entity at a weak stock price.

As far as the negative signal of cutting their dividend, I grant that would be the case. Its unfortunate that public companies find themselves in these kinds of binds.

As far as economic vs. liquidity event... its really both. Holders of subprime ABS, especially CDOs, are going to suffer real losses. A lot of paper is going to turn out to be worthless. Holders of unsecuritized loans, your traditional banks, are going to see higher default and weaker recovery fgor a while. Both of these events are real economics. Not just liquidity.

On the other hand, the market's attitude this summer of "no MBS at any price" was a liquidity event. Some (but not all) of the ABCP problem is about liquidity. This seems to be improving. But that doesn't mean there won't come back!

gramps said...

AI, come on...

My entire post was about the destroyed culture at most Wall St firms. Instead of saying you agree or disagree with that idea, you are going to split hairs about bankruptcy?

If you file for bankruptcy, lawyers collect a fee (there is a good use for Prince!) -- but in the end, the company's assets are sold at pennies on the dollar.

If you fall into the arms of a vulture investor, your assets are sold at pennies on the dollar.

I suppose lawyers and judges care about this distinction, but being forced to sell on the cheap is being forced to sell on the cheap. Only lawyers and a blog host would care whether a Chapter 7 form gets filled out.

I am really offended you tried to divert attention away from my actual argument with such hairsplitting. Agree with me or disagree -- but don't try to change my argument.

As for your comments, the facts are about 30-40% of mortgage assets out there will turn out to be worth less than par-- which means they are in default. The original buyers of the loans will suffer losses of varying sizes. That is not a liquidity crisis, that is insolvency.

The problem you are trying to portray as a "liquidity crisis" is an asset liability duration mismatch. Some half-wit portfolio manager was borrowing very short term, and lending in illiquid assets long term. No one thought this was intelligent when the Savings and Loan guys did it, and it isn't smart this time either.

Lastly, you have what lawyer types would have to call fraud. Banks used CDOs and SIVs and halloween masks to conceal many loans as being off balance sheet, when in economic terms they were not. I don't want to argue the law with you and whether your attorney thinks these were a true sale or not. From an economic standpoint, the bank's business model depended on continued access to commercial paper -- therefor they can not allow a default. Whatever your definition of "is" is, these loans are on the bank's books from an economic standpoint.

And when you add up all this off balance sheet silliness, many of these banks have, at best, inadequate capital ratios. That means a smart counterparty will not trade with them, which means the banks will collapse. In many cases, there is a very real possibility the banks are outright insolvent. The fact that management is obfuscating the books does not make them credit worthy.

This Enron like off balance sheet accounting made investors justifiably scared. It is irrational to buy MBS (or anything else) when you don't know what you are really buying. That is not a liquidity crisis, that is a very rational response when you know the salesman isn't telling you the truth.

gramps said...

psychodave - sorry you had to hear me rant at AI, but its really annoying he tried to pull that stunt.

Anyway, I still say that conglomerates are a mistake, and they will all meet the same end as their 1970s counterparts. I don't think BRK is a conglomerate in the economic sense, even if it is classified as such by S&P.

Buffet runs his holdings as separate and mostly autonomous companies. There is no effort to create "synergies", and you don't hear executives from Sees Candies being put in charge of GEICO. BRK is an investment portfolio, not a conglomerate.

After reading market commentary from the last month or so, I am more sure than ever that Wall St is due for a major comeuppance.

Back in my day (when we walked to school uphill both ways-- very funny), we talked about bond vigilantes, preserving a margin of safety. We talked about the importance of free markets, and the failings of centrally planned economies.

Today, Wall St traders are sitting around demanding (sometimes shreaking on CNBC) for the central planners at the Fed to help them rescue their business. Its one thing for the Fed to step in and provide some temporary liquidity -- that's not exactly a free market though. But today's socialists -- sorry traders -- actually want the Fed to manage the economy!!!

What they seem to forget is: there is no need for financial intermediaries or price discovery in a centrally planned economy. There is no need for Wall St.

gramps said...

Just so AI doesnt try to put words in my mouth again-- I did say 30% of mortgages are worth below par. Keep in mind that some of those are worth 95%, some are worth 50%, and maybe 6-8% are worth nothing.

If an SIV or CDO or a bank has 5-6% capital ratio -- then depending on their actual loan exposure and leverage, they could easily be insolvent.

For those loans that are currently worth 80% or more, I don't think they will formally default. These loans are denominated in dollars, and Bernanke has pledged to drop money from helicopters if necessary. The USD is tumbling against foreign currencies, commodities and real assets in general... real assets includes real estate. Housing prices might have fallen, all else equal, but they are flat because the price is denominated in dollars which are now worth much less.

Bernanke has made very clear he will inflate away most of the problem.

You probably all saw the news story that supermodel Gisele now wants to be paid in anything but USD... She is from Brazil and knows all to well what happens when the government "fixes" things by inflation.

For those of you that own fixed rate bonds, you might want to Google the phrase "certificates of confiscation" and pray that Paul Volcker comes out of retirement.

russell_fuhrman said...

It is a fact that most of the bank exposure to the mortgage market in the form of various derivatives are cash good with excellent cash flows, that is why they are reluctant to sell them until matters and markets clarify to the point where they can clear at reasonable prices. Possibly Bernanke and Paulson will have to backstop the proposed "Entity" to buy some time-along with legislation helping some hapless borrowers, also. We are talking accounting losses, not real cash losses, so the banks can easily pay their dividends and even increase them next year; this is a fact. Lastly, both Citi and Jamie Dimon have made it clear they will not bring the SIV's onto their balance sheets, so this should be the incentive for the government to temporarly help in this matter, or see the money market funds possibly break the buck, i e., Fidelity, et al. This (crisis), too, shall pass. These banks are loaded with assets and purchasers (like Wells Fargo announced yesterday) of their stock today will be happy in a year, ecstatic in five years.

psychodave said...

1) I hope you keep posting comments at Accrued Interest

2) Please stop the "I am really offended you tried to divert attention away from my actual argument" thinking. I can sympathize with this response, but it is inappropriate in this instance. Your points are valid. In fact, I fully agree with them, especially the "split hairs about bankruptcy" comment. But please try to present them "ex" emotion, just like a stock goes "ex" dividend.

AI has often shown intellect and character with troublesome commenters. He has been open-handed and generous in sharing his thinking. Most importantly, his blog has attracted commenters who contribute high quality material, among whom I include you.

He is the author of a classic.

I get more out of this site taking AI at his word and trusting his responses to be genuine. I disagree with him more often than not, but his blog is valuable in explaining what they are thinking. I share your "bond vigilantes, preserving a margin of safety." conceptual basis. Since that is clearly not working now, AI's very different perspective makes a signal contribution to my comprehension. He leaps at any opportunity to clarify things to those of us who are not yet with it.

I quietly chortled in derision at AI's sequence of calling for a rate cut in August, then, after September's 50bps cut, suddenly he's concerned about inflation. This was inappropriate behavior on my part. He's fast, real fast. After calling for a rate cut in August, he quickly grasped the Discount Rate's cut as a viable alternative. He's smart. Within a few weeks, I anticipate he'll be making subtle distinctions between inflation (e.g. late 1970s) and dollar devaluation (our immediate future).

Yes, I wish he'd spent more blog posts on FHLB buying ABCPs, and less on M-LEC. But hey, it's his blog.

Re:"Its one thing for the Fed to step in and provide some temporary liquidity -- that's not exactly a free market though", its been like that since just before my Granpa popped Granma's cherry, and the crew who rigged it were not giants of Social Democracy. I doubt Max Weber had anything nice to say about them.

Re:"Bernanke has made very clear he will inflate away most of the problem." I am not yet convinced. If I graph the Monetary base from the Fed's H.3 report or, worse yet, read the thing, it looks like the Fed is not printing a lot of money, but borrowing from foreigners to lend domestically. Any "inflation" I see is in the (ahem) intensely speculative futures markets and caused by our appetite for imports of oil and Chinese light industry output. I think Bernanke and the Fed rightly attribute M3 to the bank misbehavior. The future you anticipate is the only fix we have for that.

Re:"The problem you are trying to portray as a "liquidity crisis" is an asset liability duration mismatch." AI's blog posts fully covered the mismatch and the fraud. I share your regret that he still perceives a steep loss of credit confidence as a liquidity crisis, but hope you will help me avoid being adamant and shrill when I post my objections to his perception.

Accrued Interest said...


Sorry I didn't mean to sound flippant when I made the distinction between bankruptcy and a distressed sale. In my world, bankruptcy is what matters, so my mind always goes there.

And just so its clear, I think we have both a liquidity and a credit crisis. I do not believe that we have a generalized credit crisis, ala 2000-2002, but such a thing could develop. I think we have a consumer credit crisis, and its one of Wall Street's making.

I don't know if you read this post...


... but you should if you think I'm a Wall Street apologist.


Thanks for your comment in response to gramps. Just a quick thought on inflation. Any time the Fed makes a move, they have to balance the benefits of the move against the costs. Hiking rates will retard growth. Cutting rates will fuel inflation. Sometimes cutting rates is justified even though inflation will follow. So I don't think I'm being inconsistent when I say I think the Fed ought to cut, but inflation is concerning. I just think the need for cuts out weighs the problems of inflation.

Reasonable men may differ.

Anyway, one final thought. I'd love to do nothing but sit at my laptop and blog. I'd write multiple posts every day and I'd respond in detail to every comment. Unfortunately, I can't do that. So sometimes, like in gramps' case, I'll respond to one portion of a comment and not to the whole comment. Sometimes I agree or disagree but don't have a whole lot to say other wise. Like gramps, I hear you say Wall Street deserves some comeuppance. I think they are all a bunch of slimy used car salesmen, rotten at the core. But I don't know what you mean by "comeuppance." So I left it without comment.

Someday maybe blogging will be so popular that I can quit my day job. But until that day, readers will have to take what I can give. Wish I could say otherwise.

psychodave said...

"Sometimes cutting rates is justified even though inflation will follow."

I found the statement Over time, maintaining a strong, and perhaps more importantly, an economy with excellent prospects going forward, is the best that policymakers can do for the dollar.
to convincingly support this more positive attitude towards future cuts in the Fed Funds Rate.

gramps said...

AI - sorry if I got a little testy in my posts. You wrote a nice blog entry suggesting banks should cut dividends. I wrote a lengthy and considered reply that this might not be effective, since the corporate culture (and earnings engines) of these companies has been ruined. I certainly expected some people would agree and some would disagree, and I looked forward to hearing people's arguments for and against... I was a little put off when the only reply I got was that some of the companies I said were lost in the past didn't formally file Chapter 7.

I enjoy your blog, and appreciate your efforts-- especially since as you say this is not your full time job. I think we all learn a lot from considered debates, even when we disagree on a conclusion

gramps said...

Getting back to the discussion of the blog -- and whether the current situation is a liquidity or insolvency crisis:

Back in the late 1990s, the P/E of many stocks got to absurd levels-- especially for dot-com companies with no business plan and no earnings. When P/E's of "legitimate" companies reverted to the mean, and dot-com fantasies collapsed -- no one called it a liquidity crisis. It was over-valued stocks coming down to reality.

The alphabet soup of securities in the latest crisis (MBS, CMO, REMIC, CDO, ABS, SIV, etc) are basically all loans against houses. Houses don't have P/Es, but there are loads of affordability indexes that serve a similar purpose-- how many years of the average Joes salary is the average home price; Price/Salary ratio if you will.

Plenty of mainstream "news" magazines and papers have been pointing out that this ratio was above all historical levels in 2006.

So if you have a loan (in whatever format) collateralized by this over-priced asset -- you have a problem. If price/salary reverts to the mean, your collateral won't be worth as much as your loan.

Note that this statement is true no matter what Fed Funds are set at. It doesn't matter if there is liquidity or not -- the loans are underwater.

The fact that no one wants to extend ABCP credit against a defunct loan is quite rational.

Speaking of inflation, if you look at M2 (M3 was discontinued)-- it has been going up 5-6% yoy for many years now. If you look at property taxes (which are basically local school costs), college costs, health care costs, energy costs, and until recently housing costs -- they are all going up several multiples of CPI. If you stick money in a Treasury (pick a maturity) and take it out one year later -- you will not be able to buy the same amount of "stuff". That is the definition of loss of purchasing power, aka inflation.

If inflation is running 6% (to pick the smaller number) and Fed Funds were 5.25% -- you already have negate real interest rates.

If you want to promote growth in the economy: capital formation, new businesses, new jobs -- negative real rates is one sure way to prevent it from happening.

Lowering Fed Funds -- making real rates even more negative -- is not going to promote growth any more than it will prevent reversion to the mean of price/salary ratios.

Look at Japan-- basically zero rates for a decade and a half. The BoJ can pump "liquidity" all they want, they are only fooling themselves. No one wants to lend to the good ol' boy network at below cost (surprise?). All the low rates accomplished was to feed the Yen carry trade.

Lower Fed Funds in the US isn't going to make anyone want to lend money toward an overpriced house, especially at 90% LTV (or more). Many people cannot afford to put down the traditional 80% LTV -- and if price/salary ratios revert back to "normal", you would need 70% LTV to have a reasonable margin of safety.

In another time, lower FF might promote growth -- but today, there is no trade off between growth and inflation... it will all go to inflation, or possibly to a USD carry trade.

gramps said...

BTW, the reversion to mean (and devaluation of underlying collateral) effects ALL loans, and therefor all MBS, not just subprime. That's why all MBS spreads are widening out, even the "good stuff".

Sivaram Velauthapillai said...

Gramps I disagree with most of what you are saying so let me present my rebuttal to your views...


Houses were certainly overvalued. But the real question now is whether the stock market is pricing in the declines. Most of the stocks related to housing (eg. homebuiders, housing material suppliers, mortgage lenders, etc) are down 50% to 70%.

As far as banks are concerned, the question in my eyes is whether the market is pricing in the downside. Yes, a lot of the debt, CDOs, etc being held are garbage but how do you know the market isn't pricing that in?

As far as overvaluation is really concerned, financials and the broad stock market are not excessively overvalued by any means. If you look at P/Es, the stock market, and certainly financials, aren't expensive. They aren't necessarily cheap but they are not expensive either. I'll bet you will disagree with me (given your inflation outlook) but the real bubble right now is in commodities and emerging markets. Anyway that's how I see things...


I think we will never agree but essentially you either follow the published CPI or PCE indicators or you don't. You clearly think that they are not reflective of price inflation, whereas people like me think it is the best indicator we have.

You say inflation is higher than it is based on health costs, energy costs, housing costs, etc but I believe you are making the mistake that all humans make. Namely, we all pay more attention to bad things that happen to us (like prices going up) than the good stuff (prices going down). In general, communication costs (eg. e-mail, this blog, long-distance phone calls, etc), cars (yes, you can buy a low-end car at a lower cost than ever before (if you adjust for inflation)), computers, television, etc.

One minor thing I want to point out is that housing costs haven't necessarily gone up as much as you imagine. One of the reasons is that a lot of people rent. Rents haven't gone up. In any case, housing prices are dropping now and will be deflationary.

I really don't think real rates are negative. If it were, financial assets like stocks and bonds will be discounted much further (as was in the 70's). So far that's not true. As far as I'm concerned, the only country (that is worth talking about) where rates are negative is China. If you want to see inflation, it's in China; not in USA.

(Having said that, I'll admit that I've been wrong with commodities so far but let's really see what happens in the future).

Accrued Interest said...


I don't know what I think about your idea that Wall Street's culture is broken. But I will be surprised if some major bank and/or brokerage doesn't get sold at a firesale price. With names like MER down almost 50% YTD, and more than one bank trading at or below book value, any merger that happened now would have to be considered a fire sale price.

Accrued Interest said...

As to your point about it being an insolvency crisis vs. a liquidity crisis. I feel as though I'm being misunderstood. There is clearly a serious and deep credit problem in mortgage lending. BTW, I agree the problem isn't limited to subprime. Subprime will continue to get the headlines, but there will be prime borrowers who struggle as well.

Anyway, then we have a very real liquidity crisis created by subprime losses. Not every CDO or SIV was involved in mortgage lending. But every CDO and SIV is being impacted. GNMA just priced a project loan, fully backed by the U.S. government at swaps +75. Would have been swaps +20 in January. That's obviously not a credit situation.

Accrued Interest said...

Siviram: I think banks will struggle to generate profit growth. I don't know what price a bank has zero profit growth priced in, but until that point I'd say they're still a tough buy.