Ahead Of The Bell: Banks Upgraded By BMO Capital

NEW YORK (AP) — BMO Capital Markets on Monday upgraded its view of the banking sector because of expectations that more normalized earnings potential will return to the sector in coming quarters.

Analyst Peter Winter upgraded his view on the sector to "Outperform" from "Market Perform." He also upgraded four individual banks, BOKF Financial Corp., East West Bancorp Inc., TCF Financial Corp. and U.S. Bancorp, to "Outperform" from "Market Perform."

The increased sector rating is for investors looking at a 12- to 18-month time horizon for holding the stocks, Winter wrote in a research note.

If banks can manage through the remainder of the downturn in the credit cycle, investors will begin to again look at price-to-earnings as a barometer for bank stock valuations and not price-to-tangible book value, Winter said. Based on a rough price-to-earnings ratio of 10 to 1, Winter changed his investment stance to "buy on dips" from "sell into the bank stock rallies."

Banks are seeing a slowing in the decline of home prices and there is less tightening of underwriting standards, which are key leading indicators of improvement in the sector, Winter wrote in the note.