NEW YORK (
is staying bullish on three consumer-heavy financial firms --
Bank of America
The firm said in a research note on Monday that it continues to favor big banks and credit card companies over regional banks. Specifically, it told clients that losses for consumer and C&I (commercial and industrial) loans were trending better than it had previously expected.
"A lower consumer cumulative loss outlook simply formalizes what we have been saying for some time -- rate of change of unemployment mattersmore than the level," the note says. "If unemployment flattens out at a high level, consumer credit will improve."
Goldman has buy ratings on all three of the aforementioned companies as well as
. It currently does not have an equity rating on
As for regional banks, the firm remains said it remains cautious "given diverging credit trends between consumer and commercial real estate coupled with over-earning on fees vs. a continued depressed environment for net interest income."
Since March 2009, Goldman's estimate for total U.S. losses from the credit crisis has been a range of $2.1 trillion to $2.6 trillion, or about a 10% aggregate loss on U.S. debt. So far, banks have recognized about $1.6 trillion, or roughly two-thirds, of this figure, the note says.
The losses are shaping up to be primarily from increasing prime residential mortgage and commercial real estate loan losses and less from losses on consumer loans, such as credit cards and auto loans, and C&I loans, according to Goldman.
"Prime mortgage credit trends continue to disappoint while commercial real estate will be increasingly evident as well," the note says. "Conversely, consumer and C&I losses seem likely to come in below our original expectations given recent improvement in the data and outlook."
Goldman now expects total prime mortgage losses to be in the range of 5-6% vs. 3-4% previously, reflecting recent deterioration in credit trends, including an acceleration in delinquencies. For commercial real estate, the firm upped its loss expectations to a range of 8-10% from 7-9%, citing rising losses in construction loans and other factors.
"The core cause of the crisis was bad lending, particularly in real estate," the note says, adding later: "Part of the issue for prime mortgages is that walk-aways are more prevalent as a percent of overall defaults than in subprime
Bank non-performing assets and reserve levels are also about two-thirds of the way to the peak compared to prior housing declines, according to Goldman.
Shares of Bank of America rose 0.9 percent to $15.61 in afternoon trades, while JPMorgan's stock advanced 0.8 percent to $41.66, and Capital One shares tacked on 0.7% to $37.53.
--Written by Laurie Kulikowski in New York.