This Day On The Street
Continue to site
ADVERTISEMENT
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

3 Bank Stocks to Buy Ahead of Earnings From Deutsche

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 - Get Report), JPMorgan Chase (JPM) and Goldman Sachs (GS - Get Report) 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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BAC $16.44 0.00%
FITB $19.94 0.00%
GS $189.21 0.00%
PNC $91.33 0.00%
AAPL $112.92 0.00%

Markets

Chart of I:DJI
DOW 16,654.77 +369.26 2.27%
S&P 500 1,987.66 +47.15 2.43%
NASDAQ 4,812.7080 +115.1720 2.45%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs