KBW Says Get Long Goldman Sachs (GS), Citigroup (C) Into Q1 Earnings

April 1, 2015 11:18 AM EDT
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KBW analyst Brian Kleinhanzl previewed the bank sector into Q1 earnings.

The firm is recommending investors be long Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C) into results "as both companies should benefit from an improved FICC trading environment, and C could benefit from additional disclosure about the Costco/OneMain transactions and the continued execution upon the company’s strategy (reducing Citi Holdings, improving
efficiency, etc.)."

The analyst notes shares of Citigroup have been weak as of late, largely on macro concerns in our view, but they believe that if the bank "can show a fundamental improvement in earnings (outside of trading results) then it could be the catalyst to move shares higher."

Outside of trading results, they remain focused on trends in consumer-oriented businesses since Universal Bank earnings are more levered to the consumer than most banks.

"We expect a modest increase in total loan growth versus 4Q14 (up 1.5% un-annualized), but we expect the driver of growth to be commercial lending and not consumer lending. We believe the U.S. consumer is still in a period of deleveraging, but any signs of
re-leveraging would be a strong positive for Universal Bank stocks. An offshoot of weaker consumer lending is that credit trends may come in better than we expect. We believe that Universal Banks are getting close to ending the reserve release phase, and our 2016 estimates have no meaningful reserve release for the big four lending-heavy banks (BAC, C, JPM, and WFC). That said, we would not be surprised if charge-offs were better than expectations in the first quarter as the U.S. consumer has seen wages rise and also benefited from a decline in gas prices, which could move the consumer to improve personal balance sheets further."

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