This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

3 Bank Stocks to Buy Ahead of Earnings From Deutsche

Stocks in this article: BAC GS FITB PNC

NEW YORK ( TheStreet) --Large-cap banks will likely display checkered results in the third quarter, with strong mortgage origination and decent trading activity boosting revenues, while lower interest rates, tightening credit spreads and slowing pace of credit quality improvements could dampen the bottomline.

In a report published Monday, Deutsche Bank analyst Matt O'Connor highlighted some of the key themes for the third quarter.

One significant item for universal and investment banks such as Bank of America (BAC), JPMorgan Chase (JPM) and Goldman Sachs (GS) would be an accounting loss stemming from a tightening of credit spreads on U.S. bank bonds.

An accounting quirk called a debit-valuation adjustment allows banks to book a profit when the value of their bonds fall as technically it means they can buy back their debt at a lower rate. When market confidence improves and the value of bonds rise, banks, conversely, book a loss.

Regulators are considering removing this controversial accounting provision according to press reports, but for now, the results are likely to swayed by this rule.

Net interest margin pressure is likely to be another dominant theme, according to the report. While banks may not be readily passing on lower rates to borrowers- at least, not as much as the Fed would like- they still face a significant reinvestment risk in a low yield environment. Banks with heavy investments in mortgage-backed securities also face the risk that borrowers will prepay their loans.

On the positive side, the analyst notes the modest loan growth, decent trading activity on a year-on-year basis, and continuing credit improvement.

He expects fewer mortgage putback surprises. This report was published before federal regulators filed a lawsuit against JPMorgan, alleging that its Bear Stearns unit defrauded investors in the sale of residential mortgage-backed securities.

New York Attorney General Eric Schneiderman has warned that more cases could be filed against other big banks, so the threat of further lawsuits still looms over the banks.

Here is a look at three big bank stocks that are well positioned for third quarter, according to Deutsche Bank's O' Connor.

1 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs