Big banks are dead money

Bank of America CEO Brian Moynihan recently told investors that the combination of a sluggish U.S. economy and increased regulaton should lead to lower levels of profits for banks.

NEW YORK (CNNMoney) -- Superstar investors may be scrambling to buy up shares of beaten down bank stocks. But should you?

If you say yes, then come closer. I have this really awesome structure connecting Brooklyn and Manhattan you might be interested in buying.

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Big bank stocks are likely to remain dead money for the foreseeable future -- despite sizeable bets from the likes of John Paulson, Bruce Berkowitz and some dude in Nebraska named Warren Buffett.

Yes, Bank of America (BAC, Fortune 500) may look like a bargain at only about $6 a share. The stock is trading well below book value, the theoretical price the stock would trade at if the company were liquidated.

My Fortune colleague (and former boss in another life) Duff McDonald makes a strong case for why BofA and other banks are just too cheap now. All the bad news may already be priced in -- and then some.

But BofA, along with shares of Citigroup (C, Fortune 500), Goldman Sachs (GS, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and other banking behemoths, have all been hit hard for good reasons this year.

If the European debt crisis were a soccer match (sorry, football, for my readers across the pond), then we'd still be in the early part of the second half. And there's going to be a lot of stoppage time. And extra time. And penalty kicks.

That's bad news for big banks. They will likely continue to underperform the market as long as investors are nervous about their exposure (real or imagined) to European sovereign debt and European banks.

Even money managers who own some large banks acknowledge that the dreaded U-word will keep bank prices depressed for awhile.

"If you are investing in financials, you have to give their values a haircut -- an uncertainty discount," said Keith Goddard, co-manager of the Capital Advisors Growth fund in Tulsa.

'I'm addicted to my big bank'

Goddard said his fund owns shares of Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500) as well as asset manager BlackRock (BLK, Fortune 500). He admits that that bet is mainly a valuation call.

Citi, for example, also trades at a substantial discount to its book value. But he said it's difficult to really know what it and other financials have on their balance sheets.

But even if you get past the thorny issue of what banks do or don't own in Europe, the environment in the United States isn't pretty either. The sluggish economy is making it difficult for banks to squeeze profits from the bread and butter business of lending and taking deposits.

Increased federal regulation is hurting the banks, and many are struggling to find new ways to replace lost revenue.

The backlash against any new charges (debit card fees are now verboten, and thank heavens for that ... the fact that banks wanted to charge people for using plastic responsibly is absurd) will further constrain profits.

Bank of America CEO Brian Moynihan conceded as such during a presentation to investors Tuesday.

Speaking at the Bank of America Merrill Lynch Banking and Financial Services Conference (nothing like appearing on friendly turf, eh?) Moynihan said that the economy is merely "bumping along" and that the consumer banking business is likely to be "less valuable" due to low interest rates and more regulation.

That hardly sounds like a reason to get excited about BofA or other big bank stocks.

And therein lies the rub. Many bank investors have gotten used to the go-go times before the Great Recession when bank earnings and their stock prices could go up at least 10% a year indefinitely. Those days are likely ancient history.

Dan Genter, CEO of RNC Genter Capital, a Los Angeles-based investment firm, said bank investors now have to dial back their expectations.

He thinks that bank stocks are the new utilities, meaning that regulation will lead to anemic, albeit steady, earnings growth. And you might get a little extra kick from the few banks healthy enough to pay decent dividends. Yawn.

"The danger in investing in banks is that the significant hyper growth is over. You have to look at them as a long-term value, slow growth play," said Genter, whose firm owns shares of BofA, Wells Fargo and JPMorgan Chase. "If you buy thinking of double digits returns, you will be disappointed."

Bank dumping: Do the megabanks even care?

Now investing is never a certainty. Bank stocks may be about to embark on yet another vicious rally from the lows like they did in March 2009.

Charles Bobrinskoy, vice chairman and director of research with Ariel Investments in Chicago, said that the Europe debt crisis is not a repeat of the Lehman collapse in 2008.

But he thinks the fact that so many people believe the story of the PIIGS is Lehman Part Deux is actually a good thing. Nobody is deluding themselves by pretending that nothing is wrong.

"I'd be worried if investors were optimistic. Investors are extremely pessimistic and that's creating the opportunities," Bobrinskoy said. His firm owns shares of Morgan Stanley (MS, Fortune 500), Northern Trust (NTRS) and private equity firm KKR (KKR, Fortune 500).

But with all the things to worry about in the global economy, do you really want to take a risk and buy bank stocks now? Would you be angrier if you sat on the sidelines and missed a big move up or if you invested more in banks now only to find that Europe fears and U.S. weakness send the stocks even lower?

If people who own bank stocks have to make apologies and the CEO of one of the nation's largest banks is talking about how the industry will be less profitable, don't you think there are better places to put your money?

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.