Bank earnings on deck: Here's what to expect
Speakers
Thomas Michaud
— CEO, KBW
Summary
KBW CEO Tom Michaud previews big bank earnings, noting that bank stocks have been strong performers and the same drivers remain in place. He recommends Morgan Stanley for its private wealth business and advises avoiding Goldman Sachs due to high expectations already priced in. He also flags a potential margin peak issue for regional banks.
- Bank stocks (BKX, KRE) have outperformed significantly and supporting drivers remain intact.
- Positive operating leverage, pristine credit quality, and improving profitability still power the group.
- Morgan Stanley is recommended due to its high-barrier, highly profitable private wealth business.
- Goldman Sachs is not recommended—good news is already discounted despite an expected strong quarter.
- Regional banks could face margin peaks and deposit growth headwinds if the Fed raises rates.
- Strong industry capital levels open the door for growth, dividends, buybacks, and M&A.
Ideas
Bank stocks continue to outperform.
Bank stocks as measured by the BKX and regional banks (KRE) have outperformed, and the underlying drivers—positive operating leverage, pristine credit quality, improving profitability, and a booming Wall Street—remain in place for the upcoming quarter, supporting continued outperformance.
Buy Morgan Stanley, private wealth leader.
KBW recommends Morgan Stanley because its private wealth business is highly profitable and has a high barrier to entry, making it a better pick than Goldman Sachs where good news is already priced in.
Avoid Goldman Sachs, good news priced in.
KBW is not recommending Goldman Sachs despite expecting a great quarter, because the stock already reflects a lot of good news and may have limited further upside even as Wall Street hits record results.
