These 2 Banking Stocks May Have a Bright Future
Remember how the international banking industry faced stricter regulations after the 2008 banking crisis and recession? Well, the Basel III endgame regulations seem to soon be eased, leading to a more favorable environment for banks.?
According to Betsy Graseck, Morgan Stanley's sector expert, the banks are likely to use that excess capital for buybacks. She has even upgraded a couple of major bank stocks, indicating a bright future for the industry. Let's dive deeper into her recent upgrades and see if these names are worth keeping an eye on.
Goldman Sachs
Goldman Sachs provides a range of banking and credit services to a client base that includes financial institutions, corporations, banks, governments, government agencies, and high-net-worth individuals. The bank's experts are well-known on Wall Street, and their views on the economy, the stock market, and the international financial scene are frequently in demand, making Goldman a leader in global investment research.?
Goldman Sachs is not shy about returning capital to its investors. In its most recent financial results, for Q4 and the full year 2023, the bank returned $9.39 billion worth of capital to common shareholders. This return included $5.8 billion in common stock repurchases and $3.59 billion in common share dividend payments. The most recent dividend, worth $2.75, was declared for a March 28 payment.?
Analysts predict that Goldman Sachs is particularly well-positioned to benefit from a capital rebound. Analyst Graseck explains that "Goldman is the most exposed in our Large Cap Banks coverage to a capital markets rebound, with 64% of revenues coming from Global Banking & Markets in 2024 in our model. We model Goldman’s M&A advisory revenues increasing by 45% in 2024."?
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Bank of America
Bank of America, one of the top four banks in the US, has a market capitalization of $265 billion and total assets of approximately $3.18 trillion.
Analyst Graseck believes that Bank of America's stock is currently undervalued, as it is trading at only 9x their 2025 EPS. Graseck also notes that Bank of America benefits from a strong consumer deposit franchise, with 92% of consumer checking accounts being primary accounts and 67% of deposit balances being with customers who have been at BAC for more than 10 years.
Morgan Stanley analyst sees potential for Bank of America to hold the line in its business and notes the bank's sound liquidity potential. The analyst states, "In our view, we see extraordinarily low risk BAC would have to tap unrealized losses in its HTM securities book given the strength, stickiness, and diversity of its growing deposit franchise, ability to increase deposit rates to grow deposit balances if desired, extensive global liquidity sources of $897B, and daily LCR (liquidity coverage ratio) testing as a GSIB (global systemically important banks)."
(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)