Goldman Says Bank Shares Likely to Keep Rallying as Loans Grow

(Bloomberg) -- U.S. bank shares will probably continue to outperform, at least in the short-run, after better-than-expected fourth-quarter earnings and outlooks and their cheap stock prices finally broke a losing streak, Goldman Sachs Group Inc. analyst Richard Ramsden wrote in a note.

• Ramsden expects gains will be driven by “several management teams reiterating their ability to drive operating leverage even in the absence of further interest rate hikes”; still-benign credit across all asset classes; a reversal of weak capital market trends so far in January, and loan growth accelerating into 2019, especially given commercial and industrial (C&I) backlogs
  • Sees fees revenue growing 2% in 2019, amid “modest” capital markets revenue growth (+1%), and banks lapping “headwinds” from marking down wealth and asset management assets during 4Q’s sell-off; comments from Morgan Stanley, Citigroup, JPMorgan and BofA suggest capital markets may “inflect positively” this year
  • Reiterates buy ratings on Wells Fargo and BofA
• KBW Bank Index (BKX) has rallied 14% year-to-date vs S&P 500 6.5% gain; top BKX performers include SVB Financial, Citigroup, SunTrust, Citizens Financial, BofA
  • BKX dropped more than 18% in the fourth quarter of 2018, its worst quarter since 2011
• JPM, C, BAC are falling in pre-market trading after UBS warned of headwinds, and amid a cloudy outlook for trade and growth
• NOTE: Earlier, Fifth Third Bancorp said 4Q average portfolio loans and leases increased 3% y/y, boosted by higher commercial and industrial (C&I) lending; FITB sees year total loans, leases up 3%-3.5% y/y
  • Jan. 18, Citizens Financial Group Inc. and Regions Financial Corp. said they expect loan growth will keep growing at low-single-digit percentage rates in 2019, after reporting similar growth in the fourth quarter of 2018

To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott Schnipper

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