U.S. stocks rebounded today, aided by a rally in financials. Why was the group strong? Because a team of analysts at a well-known Wall Street firm upgraded the large banks sector. And why did they do that?
Bloomberg gives us the lowdown in
"Wells Fargo, Biggest U.S. Banks Raised by Goldman":
Wells Fargo & Co., JPMorgan Chase & Co. and the biggest U.S. banks were raised to "attractive" from "neutral" by Goldman Sachs Group Inc., which said share prices don't reflect prospects for earnings growth.
"We believe this difference in earnings power hasn't been fully reflected in share prices," New York-based analysts led by Richard Ramsden wrote in a note to clients today. "We estimate that normalized earnings for large banks are 39 percent higher than in 2007 despite the 36 percent decline in share prices."
Wells Fargo, based in San Francisco, was upgraded by Goldman to "buy" from "neutral" after its tangible assets per share increased 70 percent in the second quarter. "The reason is simple: Wells bought Wachovia at a depressed price," Ramsden said. Banks have increased earnings with acquisitions that will add to earnings over the "long term," he said.
Wow, pretty powerful stuff, eh? Then again, maybe not. You see, if you go back and look at what Goldman said in late-January, when most bank stocks were trading at far lower levels than they are now, the firm wasn't exactly upbeat on the group. Again,
Bloomberg had the details in
"U.S. Banks May Be the ‘New Utilities,' Goldman Says":
Large U.S. banks risk becoming the "new utilities" as governments introduce greater regulation and force lenders to increase capital ratios, Goldman Sachs Group Inc. analysts said.
Return on equity at the biggest U.S. banks will be limited by higher capital requirements and greater regulatory controls, analysts led by Richard Ramsden in New York said in a report to clients today. The measure of how effectively banks invest earnings may shrink to between 10 percent and 12 percent, from the 15 percent banks generated between 1990 and 2006, they said.
U.S. Bancorp was cut to "sell" because the Minneapolis- based company, while "a good bank," is already highly valued, the analysts wrote. Goldman also re-instated its sell rating on Citigroup Inc., saying "investors should avoid the stock given no core earnings power clarity."
Bank of America Corp. was cut to "neutral," the same rating given Morgan Stanley, Wells Fargo & Co. and PNC Financial Services Group Inc.
