Live Markets: More upside for banks in 2025 - KBW
17/12/2024 18:15
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Main U.S. indexes red; Dow off most, down ~0.7
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Energy weakest S&P sector; Cons Disc leads gainers
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Dollar edges up; gold off; crude down >1%; bitcoin up >1%
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U.S. 10-Year Treasury yield edges down to ~4.39%
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MORE UPSIDE FOR BANKS IN 2025 - KBW
With a market weight rating for U.S. banks, Keefe, Buyette &
Woods analysts write that the sector has more room to rise with
earnings tailwinds and "meaningful re-rating opportunities."
Christopher Mcgratty and David Konrad wrote that they see
EPS growth resuming in 2025 to the tune of 6%-plus and for 2026
they expect 57% of banks producing 10%-plus EPS growth due to an
improving net interest margin environment.
On an index level, they say that a P/E multiple of 11-12x
could be justified for the KBW Bank index .BKX and 12-13x for
the KBW Regional Banking index .KRX , "implying another 7% and
6% upside potential, and about 10% of re-rating potential
relative to the S&P Equal Weight Index."
And they point to "pockets of outsized relative value" in
larger global systemically important banks (G-SIBs) and banks
with assets ranging from $50 billion to $100 billion.
On the G-SIB side, they list Citigroup C.N and State
Street STT.N as having attractive risk reward opportunities
with Citi's EPS growth expected to be 49% between 2024 and 2026
and State Street's estimated at 28% with both expecting to have
9% net interest income per share growth.
In the next group, they point to Western Alliance WAL.N ,
SouthState SSB.N , Old National Bank ONB.O and UMB Financial
UMBF.O with EPS growth expected to range between 32% for UMB
and 51% for Western Alliance.
The analysts note that the sector started to show signs of
life in the spring of 2024 in terms of traditional merger and
acquisition activity "building momentum leading up to and
following the 2024 Presidential election" as they see optimism
around deregulation under the incoming Trump administration as a
"significantly positive factor."
In capital markets, they see strong upside in M&A and equity
capital markets (ECM) revenues with debt capital markets (DCM)
"currently over earning due to refinancing investment grade debt
in 2024."
They see Goldman Sachs GS.N as having most revenue upside
in this segment, but noted that Citi provides an inexpensive
valuation as well as revenue upside. While STT doesn't have
meaningful direct exposure outside of foreign exchange, it has
"market sensitive revenues in asset management and custody."
On Tuesday, the KRX, which is up 15.7% year-to-date, is off
~2% on the day. The BKX, up ~36% YTD, is down 1.4% for the day
so far.
(Sinéad Carew)
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FOR TUESDAY'S EARLIER LIVE MARKETS POSTS:
S&P 500 BREADTH IN FREE FALL - CLICK HERE
SOLID RETAIL SALES IS THE MAIN COURSE IN TUESDAY'S DATA
BUFFET - CLICK HERE
WALL STREET EASES EARLY AFTER RETAIL SALES - CLICK HERE
DOW INDUSTRIALS ON VERGE OF EYE-POPPING LOSING STREAK -
CLICK HERE
UPSIDE IN EUROPEAN CYCLICALS BUT NO BUYING YET - BOFA SURVEY
- CLICK HERE
THE OUTLOOK FOR THE EURO? BETTER LOOK AT CHINA - CLICK HERE
STOXX DOWN, TRADERS EYE CENBANK CALENDAR - CLICK HERE
EUROPE BEFORE THE BELL: FUTURES DOWN, CENBANK BONANZA LOOMS
- CLICK HERE
INVESTORS LOOK PAST POLITICS TO CENTRAL BANK MOVES - CLICK
HERE