Investors are finding little to love about the banking sector. That might be a missed opportunity given recent valuations of some of the country’s largest banks.
“We wonder if the risk of not owning U.S. bank stocks is greater than owning them,” wrote Jason Goldberg, a managing director at Barclays. He expects most banks to grow tangible book value this year.
More than 30 of the largest U.S. banks presented at the Barclays Global Financial Services Conference this past week, providing assessments on the recovery and their businesses. For the most part, the message from top executives was better than feared.
The problems weighing on banks—low interest rates and likely loan losses—have been expected since the pandemic shuttered large parts of the economy six months ago. But even with recent positive economic data—unemployment is now lower than where banks feared it would be, and even struggling borrowers have been making payments—bank executives and their investors are unwilling to declare victory.
Bank of America
(ticker: BAC) CEO Brian Moynihan said it was going to take a few more quarters to see the economy “pull through in any meaningful way.”
(JPM) Chief Financial Officer Jennifer Piepszak spoke of “an enormous amount of uncertainty,” adding that the bank would need more “confidence in the outlook” before thinking about releasing reserves it built up to protect against potential loan losses.
For investors, all the uncertainty gives them little reason to buy banks in the near term, especially since their dividends are capped and buybacks are restricted, thanks to the Fed’s moves in June. Most banks don’t expect to have to add to their loan-loss reserves in the third quarter, but some, such as
(HBAN), hinted at modest additions, giving investors pause.
Most of the banks that spoke at the conference tempered their net interest income…