Friday, January 8, 2010

Banking - Large Cap

Basel Proposal Call

Investment conclusion: Less bad is good for the large cap banks and with unemployment stabilizing, driving down reserve build and provisions in 2010, we are OW Large Cap Banks. Outperformance will likely be choppy as the stocks climb a wall of worry on credit losses, higher rates and DC/regulatory risk. In 2010, we expect these risks to fade as the cycle plays out with credit trumping rates, politicians passing legislation and regulators finalizing capital requirements. Ultimately, we anticipate that banks will earn above their cost of equity in a normalized credit environment.

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