The value of the world's banking institutions may have recovered somewhat of late, but it is unclear whether the industry is in the clear, according to a study.

The global banking industry's market capitalization fell 10.5% during the first quarter, compared with a 30% plunge during the last three months of last year, according to a Boston Consulting Group Inc. report released this month. While market caps were down to $3.6 trillion as of March 31 (from $4 trillion at yearend), global bank valuations actually rebounded 15% during March.

"From a market valuation [standpoint], banks may have hit bottom," said John Garabedian, the head of Boston Consulting's North American financial institutions practice. However, "banks are still in the middle of a crisis" involving falling home prices, rising unemployment and plenty of loan writeoffs to come.

U.S. banking shares have clearly been rebounding since early last month. The KBW Bank Index, which hit a 52-week low of 18.62 on March 6, closed Monday at 31.48. The report, which did not specify the market cap of North American banks, said their total shareholder return fell 20% in the first quarter, compared with a decline of 50.7% in the fourth quarter.

Still, industry watchers are unwilling to say U.S. bankers have put the worst behind them, even with the two-month rally in banking stocks and profitable first-quarter reports from Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc.

Bart Narter, senior vice president in the banking group of Celent, a Boston market research unit of Marsh & McLennan Cos., said those companies' earnings, even though they beat expectations, may be unsustainable, propped up by fickle trading gains and one-time accounting adjustments.

"It's better, but I mean, I would not be dancing at the end of the goal line here," Narter said.

Walter Todd, portfolio manager of Greenwood Capital Associates LLC in South Carolina, said the recent rebound in banking stocks is negligible when considering how far they have fallen in the last two years.

"If you see where were market capitalizations 18 months ago, this would look like a little hiccup," Todd said. "We've just kind of seen some temporary relief. I'm not sure of what the sustainability is."

William Fitzpatrick, an analyst with Optique Capital Management in Milwaukee, noted "a general fear of another capital raise in the sector that would dilute existing shareholders." Still, it appears that investors have largely gotten over fears that the banking system will be nationalized, since there has not been a major failure in six months, he said.

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