Investors who’re “apathetic” or adverse towards banks will change their stance within the yr’s second half, in response to RBC Capital Markets’ top banking analyst.
Gerard Cassidy predicts bullishness will make a comeback because of sturdy income development and optimism surrounding credit score.
“You can really see people coming back to [bank] the stocks. They’re under-owned,” the agency’s head of U.S. financial institution fairness technique on CNBC’s “Fast Money” on Thursday. “At these valuation levels, there’s limited downside from here. But I think as people realize the banks are just not going to have the credit issues that they had in ’08-’09, that’s going to be the real rallying point for owning these names.”
Cassidy, one in all Institutional Investor’s top-rated analysts, delivered his newest forecast after the Federal Reserve revealed the outcomes of its most up-to-date stress checks. The outcomes decided all 34 banks have sufficient capital to cowl a pointy downturn.
“The results came in quite nicely,” he stated. “One of the major risks that we hear from investors today is that they’re worried about credit losses going higher.”
Financials have been underneath stress. With only a week left within the first half, the S&P 500 banking sector is off 17%. Cassidy suggests the group is being unjustly penalized for recession jitters.
“What this [stress] test shows us, that unlike in ’08 and ’09, when 18 out of the 20 largest banks cut or eliminated their dividends, that’s not going to happen this time,” stated Cassidy. “These banks are well-capitalized. The dividends are going to be safe through the downturn.”
Cassidy speculates rising rates of interest will set the stage for “amazing numbers” beginning within the third quarter. He highlights Bank of America as a significant beneficiary.
“We’re forecasting Bank of America could have 15% to 20% revenue growth this year in net interest income because of the rise in rates,” stated Cassidy, who has a purchase score on the inventory.
He expects struggling banks together with Deutsche Bank and Credit Suisse to ship higher earnings outcomes this yr, too. Even in case of a monetary shock, Cassidy believes they need to be capable of stand up to it and are available out with wholesome capital.
“The real risk is outside the banking system,” Cassidy stated “Once people realize credit is not that bad and the revenue growth is real strong, that changes the sentiment hopefully in the latter part of the second half of this year.”
S&P financials rallied 5% final week.
— CNBC’s Natalie Zhang contributed to this report.
Disclosures: RBC Capital Markets has acquired compensation for funding and non-investment banking companies from Bank of America previously 12 months. It has additionally managed or co-managed a public providing of securities for Bank of America.