Investors who are “apathetic” or unfavorable towards banks will alter their position in the year’s 2nd half, according to RBC Capital Markets’ leading banking expert.
Gerard Cassidy anticipates bullishness will pick up due to strong earnings development and optimism surrounding credit.
“You can truly see individuals returning to [bank] the stocks. They’re under-owned,” the company’s head of U.S. bank equity technique on CNBC’s “Fast Money” onThursday “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, among Institutional Investor’s premier experts, provided his newest projection after the Federal Reserve exposed the outcomes of its newest tension tests. The results figured out all 34 banks have sufficient capital to cover a sharp slump.
“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 actually been under pressure. With simply a week left in the very first half, the S&P 500 banking sector is off 17%. Cassidy recommends the group is being unjustly punished for economic crisis jitters.
“What this [stress] test reveals us, that unlike in ’08 and ’09, when 18 out of the 20 biggest banks cut or removed their dividends, that’s not going to occur this time,” statedCassidy “These banks are well-capitalized. The dividends are going to be safe through the downturn.”
‘Amazing numbers’
Cassidy hypothesizes increasing rates of interest will set the phase for “amazing numbers” beginning in the 3rd quarter. He highlights Bank of America as a significant recipient.
“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 buy score on the stock.
He anticipates having a hard time banks consisting of Deutsche Bank and Credit Suisse to provide much better profits outcomes this year, too. Even in case of a monetary shock, Cassidy thinks they need to have the ability to endure it and bring out healthy 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% recently.
— CNBC’s Natalie Zhang added to this report.
Disclosures: RBC Capital Markets has actually gotten payment for financial investment and non-investment banking services from Bank of America in the past 12 months. It has actually likewise handled or co-managed a public offering of securities for Bank of America.
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