RBC prime analyst sees comeback

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Investors who’re “apathetic” or destructive towards banks will change their stance within the yr’s second half, in line with RBC Capital Markets’ prime banking analyst.

Gerard Cassidy predicts bullishness will make a comeback as a result of robust income development and optimism surrounding credit score.

“You can actually see individuals coming again to [bank] the shares. 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 ranges, there’s restricted draw back from right here. But I feel as individuals notice 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, one in every 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 exams. The outcomes decided all 34 banks have sufficient capital to cowl a pointy downturn.

“The outcomes got here in fairly properly,” he stated. “One of the main dangers that we hear from traders immediately is that they are nervous about credit score losses going increased.”

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] check exhibits 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,” stated Cassidy. “These banks are well-capitalized. The dividends are going to be protected by way of the downturn.”

‘Amazing numbers’

Cassidy speculates rising rates of interest will set the stage for “wonderful numbers” beginning within the third quarter. He highlights Bank of America as a serious beneficiary.

“We’re forecasting Bank of America might have 15% to twenty% income development this yr in web curiosity earnings due to the rise in charges,” 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 have the ability to stand up to it and are available out with wholesome capital.

“The actual threat is outdoors the banking system,” Cassidy stated “Once individuals notice credit score isn’t that unhealthy and the income development is actual robust, that adjustments the sentiment hopefully within the latter a part of the second half of this yr.”

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 providers from Bank of America previously 12 months. It has additionally managed or co-managed a public providing of securities for Bank of America.

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