Jefferies raises outlook for U.S. banks after shares have 'treaded water'

MW Jefferies raises outlook for U.S. banks after shares have 'treaded water'

Jefferies analyst Sean Darby on Thursday lifted the firm's outlook on U.S. banks to bullish from modestly bullish. "The environment for financials appears to be improving and the catalyst for performance from higher lending, a steeper yield curve and lower provisioning charges pushes us to raise the weighting back to bullish," Darby said in a note to clients. Wall Street investors are starting to recognize that both tapering and the rate cycle are appearing on the horizon, even as U.S. bank shares have treaded water alongside stable forward earnings revisions, he said. All told, the Financial Select Sector SPDR ETF $(XLF)$ is up about 28% so far in 2021, compared to a 20% gain by the S&P 500 . With the typical loan portfolio composition of a U.S. bank comprised of about 23% commercial lending, 20% residential lending and about 15% commercial real estate loans, a jump in producer prices, home prices and stabilizing in commercial real estate prices have improved the health of the overall lending portfolio of banks. A "less heartening statistic" is that total loans (gross of reserves) have slipped since 2020, whilst total deposits have surged, he said.

-Steve Gelsi

$(END)$ Dow Jones Newswires

September 09, 2021 08:59 ET (12:59 GMT)

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