- Having covered bank stocks on and off since 1985, the team at Oppenheimer says portfolio managers have never been fans of the sector, but the hatred today is off the charts - even as the reasons for that hatred have gone away.
- Banks used to be opaque, they overpaid for acquisitions, and often had frothy growth that almost invariably backfired. It's hard to say that today. While banks will always be somewhat opaque, today they're returning capital rather than blowing it on acquisitions, and their "growth initiatives are the epitome of financial probity."
- Oppenheimer's six large bank composite has on average churned out quarterly pretax earnings of $31.4B per quarter since 2013 (including $30.5B in Q1 this year, and $33.4B in Q2). That's a lot of money, especially since most of it is being used to buy back stock at less than 10x earnings and below tangible book value.
- While lower-for-longer interest rates will continue to hamper earnings, banks are managing appropriately for the current environment, and the math of buying back stock below book will eventually win the day.
- Favorite picks are Bank of America (NYSE:BAC), Citigroup (NYSE:C), and Goldman Sachs (NYSE:GS).
- ETFs: KBE, KRE