Earnings should boost hot bank trades: RBC's Gerard Cassidy


One of the 12 months’s hottest trades might get a boost from earnings season.

RBC Capital Markets’ Gerard Cassidy expects financials to exceed Wall Street expectations once they begin reporting this week.

“The big beats are likely to come from the loan loss reserve releasing numbers,” the agency’s head of U.S. bank fairness technique instructed CNBC’s “Trading Nation” on Friday. “Last year because of the pandemic, the banking industry set aside billions of dollars in anticipated credit losses, and the reserves for these losses weren’t used.”

Financials had been the third worst performing S&P 500 group in 2020, behind energy and real estate. So far this 12 months, Financial Select Sector SPDR Fund, which tracks the group, is up greater than 19%.

According to Cassidy, that is about to vary. He believes the banking sector will probably be among the many greatest performers this 12 months due to the unprecedented economic recovery.

“That was not factored in last year when the banks set aside this money to cover these losses,” he stated. “So, we expect in the first quarter that’s going to be the big driver of the earnings beat, partially offset though with slower growth in the net interest income and maybe some net interest margin pressure as well.”

JPMorgan Chase ushers in earnings season on Wednesday — together with Goldman Sachs and Wells Fargo.

Cassidy anticipates Bank of America, which studies quarterly outcomes on Thursday, would be the greatest winner. It’s up 32% up to now this 12 months.

He lists robust administration, its huge publicity to the U.S. restoration and various income stream because the chief bullish components.

“Ninety percent of their business, comes from the United States,” stated Cassidy. “With the Federal Reserve forecasting the growth of this country’s economy coming in at 6%, they are going to be one of many greatest beneficiaries of that progress.”

Cassidy names Credit Suisse because the bank going through essentially the most challenges proper now. He cites its huge losses in reference to the Archegos Capital hedge fund implosion.

“There has been a number of management changes over the years in that organization,” Cassidy stated. “Because of that possibly the controls and procedures weren’t as solid as they’ve been at some of the domestic U.S. firms.”

Shares of Credit Suisse are off greater than 26% since March 1.

Disclosure: RBC Capital Markets has funding banking relationships and/or non-investment banking relationships with JPM, BAC MS, GS, and CS.

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