In a recent report, analysts at Deutsche Bank looked at U.S. banks and discussed their top stock picks in the space and how they see the banking environment changing in coming months.
Analysts also made general predictions for what to expect from the banks’ upcoming Q1 earnings.
Interest Rates
Analysts believe that the Federal Reserve will be cautious about raising rates and predict that the Fed will wait until the economy is much stronger than it is now. This caution will likely result in higher capital market activity for the banks, particularly in fixed income instruments, currencies and commodities (FICC).
Analysts are calling for a rebound in forex activities and predict that FICC-related revenues will provide a boost for banks before net interest income will.
Q1 Earnings Expectations
Overall, analysts expect “sluggish” traditional banking numbers during Q1. They are not impressed with the loan growth environment and believe that the net interest margin (NIM) pressures of 2014 will continue into early 2015.
In addition, new regulation and changes in consumer behavior will also likely hurt fee-related income.
Finally, the rebound in mortgages has been “modest.” Analysts believe i-banking numbers “may be lower overall, but up at the large US banks.”
Stock Picks
The report lists three stocks as Deutsche Bank’s top picks in the space.
Analysts like Bank of America Corp BAC 0.13% because the stock trades at only a 5 percent premium to tangible book value, and the company is “the best large bank play” on a rising interest rate environment.
Deutsche Bank also likes Citigroup Inc C 0.19% because it trades at a 25-30 percent discount to peers based on its tangible book value, and the company has taken several recent steps to make its operations less risky.
Analysts also like M&T Bank Corp MTB 0.58% because they believe that the company’s acquisition of Hudson City Bancorp Inc HCBK 0.67% will close soon, and M&T will see earnings accretion in the high-single-digits in 2016 as a result.
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