Fundamentals bode well for the major U.S. banks, such as JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. (JPM) Report, Bank of America (BAC) - Get Bank of America Corp Report, Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. (GS) Report and PNC Financial (PNC) - Get PNC Financial Services Group, Inc. Report, says the prominent Wells Fargo analyst Mike Mayo.
“It’s bull-market banking,” he told CNBC. “It’s a good time to be long banks. You have credit euphoria.”
Banks should benefit from improved technology, he said. “This is the point that’s most underappreciated about the banks. ... They spent in the last decade retooling with technology.
“We are very big on the technology revolution at banks, and we favor those banks that not only look good in the short term, but also in long term.”
Rising interest rates should help too, Mayo said.
“Once interest rates increase, and the yield curve gets steeper, and the short end goes higher, that is going to be a boon for banks and their net interest margins,” said Mayo. “That’ll be great.”
To be sure, there may be a downside. “If you have too much increase in interest rates, and you have inflation, that could eventually be hell,” Mayo said.
JPMorgan recently traded at $170.77, up 0.4%; Bank of America at $44.65, up 1.2%; Goldman Sachs at $392, up 0.4%; and PNC Financial at $203.60, up 0.9%.
Morningstar analyst Eric Compton likes JPMorgan, too, though he puts fair value at $140.
It is “arguably the most dominant bank in the U.S.,” he wrote in July.
“With leading investment bank, commercial bank, credit card, retail bank, and asset and wealth management franchises, JPMorgan is truly a force to be reckoned with.”
The major banks begin reporting earnings next week. JPMorgan and Goldman Sachs are scheduled for Tuesday and Bank of America and Wells Fargo on Thursday. PNC is scheduled for next Friday, Oct. 15.