Friday, 11 September 2020 15:01

Banks Look Like a Good Buy

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(New York)

Banks have been absolutely hammered since COVID erupted, and they have not come back very much at all. Overall they are down 33% on the year versus a 5% gain for the S&P 500. Worries about loan losses and low interest rates headline the set of fears for the banking sector. However, banks may have an ace in the hole. Early in the year they set aside tens of billions for loan losses—which hurt earnings, but that may now be their good fortune. Loan losses have not been as bad as expected and many suspect that banks may start to let some of those loss provisions flow through to the bottom line in the next couple earnings seasons.


FINSUM: In our view, this would be a double whammy to the upside for the sector. Not only would it result in blowout earnings, but it would officially alleviate a big fear—that loan losses are going to be very bad because of COVID. Altogether seems like a good opportunity.

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