Wells Fargo’s Mike Mayo: Citi My Top Pick of Big Banks
Speakers
Mike Mayo
— Head of US Large-Cap Bank Research, Wells Fargo
Summary
Mike Mayo, Wells Fargo's head of US large-cap bank research, previews a pivotal bank earnings week. He expects strong results for large banks driven by a barbell of robust Wall Street trading and accelerating Main Street commercial loan growth. Citigroup remains his top pick due to a deep structural transformation, while JPMorgan is a long-term growth story temporarily underperforming. He also rings the bell on a sustained rebound in traditional commercial lending that will aid regional banks. Credit losses are noted as an unpriced tail risk.
- Large bank earnings seen rising 15-20% year-over-year.
- Barbell thesis: record Wall Street revenues and resurgent Main Street loan growth.
- Citigroup is the top pick, citing multi-decade cultural transformation under Jane Fraser.
- JPMorgan viewed as a long-term growth stock despite near-term spending/revenue mismatch.
- Traditional commercial loan growth is at an inflection point, seen as sustainable.
- Regional banks expected to benefit disproportionately from the commercial loan rebound.
- Credit losses flagged as a potential negative surprise the market is not pricing in.
Ideas
Large banks poised for strong earnings growth.
Overall bank earnings are expected to rise 15-20% year-over-year, driven by a barbell of record Wall Street revenues from fixed income, equity trading, IPOs, and merger acceleration, combined with an emerging rebound in traditional commercial loan growth on Main Street as companies increase capital expenditures. He says the largest banks (the big five) are poised for strong results and Goliath is winning.
JPMorgan a long-term bank growth stock.
JPMorgan is the biggest bank with a generational CEO, Jamie Dimon. Though the stock has underperformed this year because spending currently exceeds revenues, it is a timing mismatch as they invest for the long term. He expects earnings to be quite strong, and the bank remains the growth stock among banks with a Jamie Dimon premium, indicating long-term confidence.
Citi top pick on structural transformation.
Citigroup is his number one pick for the last two years. The company is undergoing a multi-decade cultural transformation under CEO Jane Fraser, moving from a 50-year global matrix structure to five accountable lines of business with dedicated CEOs, clear targets, and no place to hide, which is night-and-day different from its past and superior to some peers.
Commercial loan comeback lifts regional banks.
Traditional Middle America commercial loan growth is at an inflection point and is expected to be sustainable for the next few years. This rebound in commercial lending should disproportionately benefit regional banks, which will show improved results once they report.
