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NICE WEATHER FORECAST FOR BANKS IN 2025?

UBS analysts led by Erika Najarian asked in research distributed on Tuesday whether banks can "have all the nice things in 2025?" The thinking so far seems to be yes.

Some nice things the UBS analysts cite include stronger loan growth, a capital markets renaissance and deregulation as well as higher rates and no hiccups in credit quality.

And while valuations, at 12-13x, are near the top of 'absolute ranges,' Najarian describes banks as "undemanding relative to the broad market."

For the analyst, all this suggests potential positive revisions to EPS. But while positioning is light among long-only and macro investors and stocks have lost ground since the November 2024 election, Najarian suggests that "investors should pick their spots in '25."

And from stocks covered, Najarian sees money center banks having most exposure to the positive themes for 2025.

Now looking at a neutral rate of ~4%, which is 100 basis points higher than when UBS had last revisited, the analyst notes that from the list of good things, "the only thing that wasn't a straightforward positive was higher-for-longer rates."

As a result, Najarian prefers money centers, which have asset-sensitive balance sheets. This is because if loan growth comes back she expects deposit competition to accelerate, especially as banks "retain their liquidity profiles relative to their balance sheet size."

With this in mind the analysts list four top picks for 2025. These include Bank of America BAC.N, which they upgraded to 'buy' with a $53 PT, Wells Fargo WFC.N with higher-for-longer good for its net interest income (NII) and PNC Financial Services PNC.N, which they say is poised to have a strong year with record NII.

The also include Huntington Bancshares HBAN.O saying it "zigged (invested) when everyone zagged (battened down the hatches), and now benefits from strong loan and deposit growth trends today."

On Tuesday the S&P 500 banks index .SPXBK is up ~1.3% with BAC one of the top gainers, up 1.7%, while WFC is up 0.6%, HBAN is up 0.3% vs a ~0.5% gain for PNC.

(Sinéad Carew)

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FOR TUESDAY'S EARLIER LIVE MARKETS POSTS:

JOLTS, PMI, TRADE BALANCE: RATE CUT CAN KICKED DOWN THE ROAD - CLICK HERE

U.S. STOCKS GYRATE AS TRADERS DIGEST DATA, EYE RISING YIELDS - CLICK HERE

ANALYST SEES BITCOIN OVER $200,000 BY END OF 2025 - CLICK HERE

S&P 500 INDEX: SANTA DISAPPOINTED, BUT NEW YEAR STILL BRINGS SOME CHEER - CLICK HERE

HIGH EQUITY VALUATIONS NO IMPEDIMENT TO FURTHER GAINS - UBS - CLICK HERE

GOING FOR GOLD - CLICK HERE

SPORTSWEAR SECTOR'S CYCLICAL DOWN-CYCLE IS ENDING - BOFA - CLICK HERE

DON'T SELL EUROPEAN AUTOS WHEN SENTIMENT IS AT A TROUGH - CLICK HERE

EUROPEAN SHARES MIXED - CLICK HERE

EUROPE BEFORE THE BELL: FUTURES RETREAT - CLICK HERE

INFLATION RUNS HOT IN THE EURO ZONE - CLICK HERE

(Terence Gabriel is a Reuters market analyst. The views expressed are his own)