NEW YORK — Bank stocks rose Monday amid upbeat comments from several analysts, including Meredith Whitney, known for her initially unpopular bearish calls on the stocks of large banks in the financial crisis that ultimately proved to be correct.
Whitney, of Meredith Whitney Advisory Group, boosted her investment rating on the shares of Goldman Sachs Group Inc. to buy, predicting it will post second-quarter results Tuesday above Street estimates. She also said bank stocks will be good buys in the short term due to a robust mortgage business.
Adding to the cheer, Fox-Pitt analyst Andrew Marquardt told clients in a note that the "risk/reward for the bank sector has become more balanced, and the market is starting to show willingness to look beyond the deepening cyclical problems."
And though Barclays Capital analyst Jason Goldberg lowered his estimates on a number of banks Monday, he also projected the second quarter will show a continuation of several positive trends seen in the first quarter, including a strong capital-markets environment and a solid mortgage-refinance backdrop. Goldberg also expects an improvement in service charges and for market-related write-downs to continue declining.
The S&P 500's financial sector was, by far ,its best-performing sector in recent Monday trading, closing up 6.5%. Meanwhile, the S&P Bank Index rallied 6.5%, and the KBW Regional Banking Index climbed 5.6%.
While Whitney said the longer-term outlook for most banks is grim, investors looked past that, considering the bullish part of her forecast more significant because a bullish call from her is rare.
Goldberg's note to clients also had its share of bearish comments — he expects loan losses to continue rising in most loan categories at most banks, and loan growth to be "very subdued." He cautioned that, "while certain pockets on the consumer side showed stabilization in early stage delinquencies in 1Q, we have seen this turn out to be temporary before."
Fox-Pitt, meanwhile, believes an increase in non-performing assets from commercial real estate and commercial and industrial loans will be offset by a decline in construction-related non-performing assets. Marquardt added, "While we are still nervous about negative implications from market disruptions and potential tougher comps in '09, the market appears to already be factoring in this, given valuations near 10-year plus lows for the group."
Among the biggest gainers in the bank sector Monday was regional bank First Midwest Bancorp, which jumped 18% to close at $7.40. Baird raised its investment rating on the shares of First Midwest to outperform, saying the bank's ability to absorb losses and its earnings potential aren't reflected in its valuation. Other regional banks up strongly included Sterling Financial Corp., which climbed 21% to $3.13, and Pacific Capital Bancorp, which rose 12% to $2.18.
Among the big banks, Bank of America Corp. gained 9.3% to $12.99, while Wells Fargo & Co. rose 8.4% to $24.80, Citigroup Inc. climbed 7.3% to $2.78 and JPMorgan Chase & Co. jumped 7.3% to $34.71.