Apr 14, 2023
Expect U.S. bank results to be weaker in the coming quarters: Strategist
, BNN Bloomberg
JPMorgan's 21% net interest income guide for the year is a good surprise: Strategist
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The U.S. banking sector exceeded analyst expectations in the first quarter of the year but one financial expert thinks this strength may not last.
The sector came under pressure earlier this year following the collapse of Silicon Valley Bank as market participants feared a global banking crisis in the aftermath. This first round of earnings from major U.S. banks including JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. is telling investors they don’t need to fear the system's stability — however the banks’ balance sheets are showing some signs of weakness despite the explosion in trading activity, according to Dick Bove, chief financial strategist at Odeon Capital.
“If you can’t argue that trading activity is going to remain this strong, (then) second, third and fourth quarter earnings for the banks are not going to be that good,” he said.
Bove cautioned that the optimism driving U.S. banking stocks higher on Friday will not last as he points to weakness in key metrics outside of their capital markets divisions.
“You’re going to see a contraction in lending, and for the banks, a contraction in their margins. You’re going to see on the consumer side, in particular, an increase in loan losses — and that’s the core business of a bank,” he said.
While shares of major American banks are showing strength, Bove argued it is only because investors have moved away from the idea that the financial system will see a repeat of the 2008-2009 financial crisis. Despite this current optimism, he doesn’t believe now is best time for investors to buy into some of these stocks.
“You should not play this rally on the buy side,” he said.
The sector came under pressure earlier this year following the collapse of Silicon Valley Bank as market participants feared a global banking crisis in the aftermath. This first round of earnings from major U.S. banks including JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. is telling investors they don’t need to fear the system's stability — however the banks’ balance sheets are showing some signs of weakness despite the explosion in trading activity, according to Dick Bove, chief financial strategist at Odeon Capital.
“If you can’t argue that trading activity is going to remain this strong, (then) second, third and fourth quarter earnings for the banks are not going to be that good,” he said.
Bove cautioned that the optimism driving U.S. banking stocks higher on Friday will not last as he points to weakness in key metrics outside of their capital markets divisions.
“You’re going to see a contraction in lending, and for the banks, a contraction in their margins. You’re going to see on the consumer side, in particular, an increase in loan losses — and that’s the core business of a bank,” he said.
While shares of major American banks are showing strength, Bove argued it is only because investors have moved away from the idea that the financial system will see a repeat of the 2008-2009 financial crisis. Despite this current optimism, he doesn’t believe now is best time for investors to buy into some of these stocks.
“You should not play this rally on the buy side,” he said.
