Traders who’re “apathetic” or detrimental towards banks will change their stance within the 12 months’s second half, in accordance with RBC Capital Markets’ prime banking analyst.
Gerard Cassidy predicts bullishness will make a comeback on account of sturdy income progress and optimism surrounding credit score.
“You may actually see individuals coming again to [bank] the shares. They’re under-owned,” the agency’s head of US financial institution fairness technique on CNBC’s “Quick Cash” on Thursday. “At these valuation ranges, there’s restricted draw back from right here. However I believe as individuals understand the banks are simply not going to have the credit score points that that they had in ’08-’09, that is going to be the actual rallying level for proudly owning these names.”
Cassidy, considered one of Institutional Investor’s top-rated analysts, delivered his newest forecast after the Federal Reserve revealed the outcomes of its most up-to-date stress assessments. The outcomes decided all 34 banks have sufficient capital to cowl a pointy downturn.
“The outcomes got here in fairly properly,” he mentioned. “One of many main dangers that we hear from buyers right now is that they are anxious about credit score losses going greater.”
Financials have been beneath strain. 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] check reveals us that in contrast to in ’08 and ’09, when 18 out of the 20 largest banks minimize or eradicated their dividends, that is not going to occur this time,” mentioned Cassidy. “These banks are well-capitalized. The dividends are going to be protected by means of the downturn.”
Cassidy speculates rising rates of interest will set the stage for “wonderful numbers” beginning within the third quarter. He highlights Financial institution of America as a serious beneficiary.
“We’re forecasting Financial institution of America may have 15% to twenty% income progress this 12 months in web curiosity revenue due to the rise in charges,” mentioned Cassidy, who has a purchase score on the inventory.
He expects struggling banks together with Deutsche Financial institution and Credit score Suisse to ship higher earnings outcomes this 12 months, too. Even in case of a monetary shock, Cassidy believes they need to have the ability to stand up to it and are available out with wholesome capital.
“The actual threat is outdoors the banking system,” Cassidy mentioned, “As soon as individuals understand credit score is just not that dangerous and the income progress is actual sturdy, that modifications the sentiment hopefully within the latter a part of the second half of this 12 months.”
S&P financials rallied 5% final week.
— CNBC’s Natalie Zhang contributed to this report.
Disclosures: RBC Capital Markets has obtained compensation for funding and non-investment banking companies from Financial institution of America prior to now 12 months. It has additionally managed or co-managed a public providing of securities for Financial institution of America.