Bullish Goldman note on banks lifts US shares ahead of earnings season
US STOCKS surged yesterday after investment bank Goldman Sachs upgraded the banking sector to “attractive” from “neutral” ahead of the third-quarter earnings season that kicks off tomorrow.
Wall Street shrugged off a four-day losing streak after Goldman issued a note saying that while the big banks’ earnings have surged by nearly 40 per cent this cycle their share prices do not reflect their earnings potential.
“The market has failed to recognise the dramatic improvement in earning power at the large banks versus the regionals,” Goldman analysts said, keeping their “cautious” view on regional banks.
Tangible assets per share have risen 29 per cent for large banks compared with a 25 per cent fall for regionals, while pre-provision earnings per asset have increased seven per cent for large banks versus a 14 per cent fall for regionals.
Goldman upgraded Wells Fargo to “buy”, saying it was the “big winner” in this cycle as its tangible assets per share have risen sharply by 70 per cent in the second quarter of 2009 compared to 2007. The bank’s shares shot up by over seven per cent to $28.13. Capital One Financial, which was also upgraded, gained over eight per cent to $35.93.
Alcoa jumped five per cent to $13.47, ahead the miner’s results tomorrow, the first in a raft of results pencilled-in over the coming weeks.