30th May 2024

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Business Industry and Financial

​U.S. banking stocks are trading at a discount: investment expert

As U.S. banks post strong quarterly results, one investment expert says the majority of these companies are trading at a large discount. 

The sector is benefiting this season from lowered expectations, higher revenue from loans and in the case of JPMorgan Chase & Co, the acquisition of a regional bank helped the bank to reach record profits, Stephen Biggar, director of financial services research at Argus Research, told BNN Bloomberg in a TV interview on Monday.

Biggar explained that each bank has their own particular strength which is pushing them forward this quarter and is positive on the sector overall. 


“The group at large is at a discount,” he said. 


He pointed to JP Morgan’s results as very promising and believes the bank will continue to reward investors in the long run. 


“The thing I like about them (JP Morgan) is their diversification,” he said.


Biggar said JP Morgan’s broad exposure to mortgages, credit, traditional branch banking and commercial real estate each place the bank in a good position. 


“Even if they don’t have all the cylinder’s working, they’re still able to power through,” he said. 


He does, however, foresee some weakness ahead for the sector. 


Notably, he cautioned that higher interest rates will ultimately be a drag on loan growth for the U.S. banks, and new interest margins will continue to be under pressure. 


“There are some obvious signs of slowdown, loan growth obviously is pulling back, which is what you’d would expect in a higher interest rate environment which is what the Fed is really trying to accomplish here — slow things down,” he said. 


One bank he is cautious on is Goldman Sachs Group, Inc. 


Biggar is anticipating a host of issues that will prevent earnings growth at Goldman, and in particular their reliance on the capital markets segment — which is likely to pull it’s overall performance down, he said. 


“Goldman is far more beholden to the capital markets segment, the weakness in investment banking, M&A activity, and they’ve made some forays into consumer banking that they are now unwinding that was very costly, he explained. 


“Their earnings (Goldman) are probably going to be down about 50 per cent year-over-year in the second quarter,” Biggar said.