Despite the general downwards trend of all the usual suspects share price (RBS,A&L,HBOS etc) Auntie Beeb with the help of a talking head from Credit Suisse re-iterated that bank shares are undervalued.

This IMHO means 1 of four things:

1. Bank stocks are genuinely under priced - buy 'em now as the market will rise and you will profit
2. The analysts can't see what a dire situation we are in
3. The Beeb is biased
4. The broken bullish record of "Do not panic you will always make money on the markets" and "Music aboard the Titanic" is being reinforced as it is the only mantra they know

Personally, I think [3] and [4] apply. No matter what the situation, the financial markets are based on confidence and this has to be maintained at all costs. Hence, the people holding the parcel when the music stops [Joe public] will always get his fingers burnt whether it it through pension funds, house prices or whatever.

Comments anyone ?

Even more 'undervalued' now.

Seriously though, the monumental pounding RBS has taken over the last three months seems a bit overdone to me. Even Lloyds has taken a huge kicking, and they have next to no exposure to the subprime market. That said, I'm not going to put my money where my mouth is until we start seeing some sustained rises.

Good article here on RBS:
http://thescotsman.scotsman.com/business.cfm?id=1851792007

"TODAY I introduce a new indicator of financial fortune in these deeply troubled times - the RBS Sir Tom McKillop "Braveheart" Index.

Subscribers to that demonic white-knuckle ride known in the stock market as Royal Bank of Scotland plc may have noticed that, in one of the worst days of turmoil at RBS earlier this month, chairman Sir Tom McKillop bought 118,000 shares in the bank.

The purchase, on 8 November, was struck at £4.19 a share, costing in all £495,010, not including dealing costs.

In current conditions, this is akin to tying £495,000 to a cork and tossing it out to sea in a raging gale. Was this the most perspicacious thing to have done? Or the most foolhardy?

Already it could be hailed as both. Such is the intensity of the storm across financial markets that McKillop's investment has shown both a £56,050 paper profit and a £26,255 loss in the space of just six trading days."

I'm not so sure that Lloyds won't have exposure to CDOs etc though. They are upping their savings rates, now 6% in internet saver for over 100k which is one of the most competitive retail rates I've ever seen them offer. They seem in want of deposits

It is a good question to ask.

At some point banks and builders will be undervalued, but we are only 2 months into the credit crunch for real and only the beginning of the fall in UK house prices.

Having said that, Credit Suisse have just pumped cash into A&L, and there is talk of a bid from Santander and B&B look to be building a base, so perhaps they are undervalued. They look better value than they did 6 months ago that's for sure!

Builders and banks could be a very profitable cyclical play over the next few years if timed correctly.

Banks have had a very good few days now after their absolute caning over the last month. It'll be interesting to see what happens next.

I even find myself looking at housebuilders - specifically Taylor Wimpey. Big FTSE100 company: p/e 3.9, div yield 7.4%, div cover 3.4, price to book 1.0. It's a bargain on those fundamentals at least. Somehow it just doesn't sit with me well, I wonder why.

Could it be because a house price crash will mean that new build sales will plummet and that P/E will not look quite so good?

In the long term the shares are very undervalued. That gives lots of scope to watch them turn around first rather than try to call the bottom. There's a lot of bad news coming yet.