During the last crisis, it was mostly banks and financial institutions that were hit the most. Even though other assets rapidly fell in value as well, many banks still have not recovered. Even in these days, we can see in media new charges against banks which allegedly blamed investors and boosted the bubble. They do not hesitate to pay fines in billions of dollars, but none person in US or UK has been jailed so far.

In this article, we will take a look at the performance of the biggest, well-known banks´ stocks, as if we bought them at their peak of the bubble and would hold them until now.

These banks include:

Market. Cap (US$)

Current price ($)

JPMorgan Chase & Co.

246,44 B

67,39

Wells Fargo & Company

234,34 B

45,72

Bank of America Corporation

161,04 B

15,6

HSBC Holdings plc

152,83 B

37,81

Citigroup Inc.

138,85 B

47,11

The Goldman Sachs Group, Inc.

68,98 B

168,02

Morgan Stanley

62,34 B

32,24

Barclays PLC

39,94 B

9,03

Credit Suisse Group AG

29,64 B

13,53

Deutsche Bank AG

19,75 B

13

To have something to compare their performance with, we will show returns (calculated using close prices) of main US stock indexes, again from their top level right before the crisis occurred.

These returns can be seen below:

Performance

Period

S&P 500

39,10%

10/9/2007 – 9/22/2016

Dow Jones

29,85%

10/9/2007 – 9/22/2016

Nasdaq

86,75%

10/31/2007 – 9/22/2016

Quite surprising may be the return of Nasdaq, which almost doubled in value since then and its return is higher than performances of two other indexes combined.

Let´s find out how much would we be left with if we bought banks at the highest close price right before the collapse of markets.

Performance

Period

JPMorgan Chase & Co.

26,67%

5/9/2007 – 9/22/2016

Wells Fargo & Company

14,87%

9/19/2008 – 9/22/2016

Bank of America Corporation

-71,58%

11/20/2006 – 9/22/2016

HSBC Holdings plc

-62,01%

10/31/2007 – 9/22/2016

Citigroup Inc.

-91,65%

12/27/2006 – 9/22/2016

The Goldman Sachs Group, Inc.

-32,23%

10/31/2007 – 9/22/2016

Morgan Stanley

-57,53%

6/14/2007 – 9/22/2016

Barclays PLC

-85,54%

2/23/2007 – 9/22/2016

Credit Suisse Group AG

-82,46%

4/25/2007 – 9/22/2016

Deutsche Bank AG

-90,71%

5/11/2007 – 9/22/2016

As we can see, results are pretty ugly for most of the banks. Only two banks have positive returns – JPMorgan Chase and Wells Fargo.

We would be left with less than half of our investment buying stocks of 7 out of these 10 banks, and would have lost almost all our money investing in 2 of them – Citigroup and Deutsche Bank – losing 91,65% and 90,71% respectively.

In this case, avoiding investing in individual banks stocks and buying an index fund instead would definitely pay off, as every index mentioned had a better return than any of the banks included in this analysis.

What should we learn from this? When a financial crisis strikes, it is (logically) mostly banks that suffer the most. Buying stocks of companies performing well in times of uncertainty (defensive sectors – utilities, telecoms) may be a good idea. But as we´ve just seen, buying the whole market through index fund can save our time and deliver satisfying results as well.

Data source: Finviz, TradingView