After years of avoiding large financials and banks, FPA manager Steven Romick recently changed his tune. Romick noted in a July letter to shareholders that his FPA Crescent (FPACX) fund established a small position in three large banks. Based strictly on fundamental, bottom-up analysis, Romick found the valuations of these banks too compelling to pass up. Still, macroeconomic and regulatory concerns limited FPA Crescent's position to just 1.3% in the three banks.
However, at today's prices, Romick finally sees value in large, domestic banks. He estimates that Crescent's basket of financials trades at 85% of tangible book value and roughly 7 times normalized earnings. From a strictly bottom-up perspective, these stocks deserve a much heavier weighting in the portfolio, Romick said.