Citigroup analysts are urging investors to adopt an aggressive stance when considering U.S. banking stocks, asserting that recent industry upheavals present enticing entry points.
This advice accompanies their decision to upgrade Citizens Financial Group's stock rating. Despite concerns raised by New York Community Bancorp and Aozora Bank regarding commercial real estate (CRE), Citigroup remains unwavering in its confidence in the broader banking sector as reported by Reuters.
Addressing CRE-related worries, Citigroup notes that the primary focus for investors has been on office loans, constituting only 1% to 4% of total loans for banks under Citi's coverage.
Although recent months witnessed profit declines as lenders fortified capital buffers against potential CRE-related losses, Citigroup suggests that the majority of the reserve building is now in the past.
The industry faced turbulence last week after NYCB reported an unexpected quarterly loss and reduced its dividend, prompting concerns about other lenders' exposure to CRE.
Despite these challenges, Citigroup maintains a proactive stance for investors, advocating offense over defense in the current environment. As a testament to their confidence, the brokerage upgraded Citizens Financial's stock to "buy" from "neutral."
Citizens Financial and M&T Bank, significant underperformers in the KBW Bank Index since NYCB's earnings report, are seen by Citigroup as opportune investments.
The brokerage views the current moment as an optimal entry point for Citizens Financial, citing its embedded growth potential due to significant under-earning on net interest income, expected to course correct over the next couple of years.
Additionally, Citigroup reiterates its "buy" rating for M&T Bank's stock, anticipating that positive commentary from the bank's management team will restore market confidence in its credit exposures.
This strategic approach aligns with Citigroup's overarching recommendation for investors to seize opportunities amidst the recent industry challenges.
05.02.2024
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