Is the worst over for banking shares? Given that some investors missed the April to date  bull run, are there still signs of green shoots in the banking. Before the recession, RBS shares were 600p, Barclays shares were over 750p, Lloyd’s shares over 400p; Bank of America was over $60. All these shares are now trading at less than a quarter of their pick price before the recession even after a 3/4 year bull run. Is there any chance that these shares could rise further or the correction process will take the prices back to their 2008 levels.

Here are some factors to consider when buying or selling banking shares:

Pros

1.Given government support to banking sector it is very unlikely that any bank will go under during this “last” part of the recession. Given the stimulus packages, every tax payer now owns some part of a bank at least one and the government will not let the taxpayer loose the money.
2.If the green shoots are out there, then there is room to tap into the next bull run whether its next month or next year. US Federal Reserve chairman Ben Bernanke: "We're working on it. And I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year. We'll see recovery beginning next year (2010). And it will pick up steam over time." 
3.Excess liquidity in the market due to excessive stimulus packs will probably means too much money chasing few banks. This will probably mean banks have a greater chance of producing results exceeding market expectations in the next few years.
4.Banks have consolidated, are more efficient than they were before the recession and there seem to be less competition. No more huge unjustified bonuses- everyone seems to be watching.
5.There have also been rumors that some governments might sell some of itheir stakes in the banks increasing confidence in the sector.
6.Some banks have started repaying their government's loans and further increasing confidence in the sector.

 
Cons

1.The recession may continue for a couple of years and one can get burnt out for a long period. Warren Buffett: "The economy will be in shambles throughout 2009 and, for that matter, probably well beyond but that conclusion does not tell us whether the stock market will rise or fall"
2.For a short term investor the market, it might be too late to get into the banking stocks. Short term investors have already made stunning gains the past few months. Bank of Ireland short term investors made 1,783% profit when the shares rose from 15p to 226p in a space of less than 3 months. Barclays rose from 51p in January to 280p in May.
3.Recently some top brokers have issues “a short-term sell” orders on bank stocks. Graham Spooner says “However, with the bank warning it may be some time before it can stand alone financially, we are advising shareholders to sell.”

 
Conclusion

The long term view appears positive. However for short term investors it can be a hell of a risk to buy banking shares now but it might be worthy buying small shares in stages increasing your holdings on days when your preferred holdings fall in price.