As Ubben said, banks have the ‘lowest risk profile than any time in our lifetime’

By Bryan Rich

July 16,  5:00 pm EST

Today we heard from two more of the “big four banks” on Q2 earnings.

Yesterday, Citi kicked it off with 11% earnings growth compared to the second quarter of last year.  This morning, JP Morgan beat expectations, reporting 23% yoy earnings growth.  Wells Fargo followed with an earnings beat, growing earnings by 32% yoy.

The banks continue to put up big numbers.  And it’s, in large part, thanks to consumer banking.  With record low unemployment, record high net worth and record high credit worthiness, the consumer business is strong.

Last year, one of the best value investors of the past twenty years, Jeff Ubben, said the U.S. banking system has the lowest risk profile “than any time in our investing lifetime.”  A decade following the financial crisis, he thought the timing is finally right for major banks.  He has been right.

With that in mind, if we look back at the sector weightings in the S&P 500, financials were the heaviest weighted sector in the years leading up to the financial crisis — at 22% of the index.  The financials currently make up just 13% of the S&P 500.  Meanwhile, the average P/E on the big four banks is just better than 10 – well below the long-term average on the broader market of 16. The banks are cheap (still).

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