Six reasons to like big U.S. banks

There's still room for these stocks to run, says Manulife's Michael Mattioli.

Michael Ryval 14 May, 2015 | 5:00PM

Once much maligned for the sub-prime mortgage meltdown that triggered the 2008 global financial crisis, big U.S. banks have staged an impressive market rebound since then. The KBW Bank Index, which tracks large-cap bank stocks, is up 215% including dividends since the March 2009 bottom. This is in line with the benchmark S&P 500, which is up 213%. Yet there is still considerable room for bank stocks to run, says Michael Mattioli, managing director and portfolio manager with Boston-based Manulife Asset Management (US) LLC.

"The valuation gap differs for each bank, but on average we believe there is 25% upside. Put another way, they are trading on average at about 80 cents on the dollar to their base-case intrinsic value," says Mattioli, a member of the team that manages Manulife U.S. Large Cap Equity. "Typically, when we look for a thesis, we like it when there are a number of things that can go right. This is a situation where this is definitely the case."

First, Mattioli points to strong loan growth. "Long-term, it should grow roughly in line with nominal GDP, which should track roughly 5%. Between 2009 and 2013, loans actually contracted at a 2% annual rate. But over the past year, loan growth has come in at 6%, so it's come up quite a bit," says Mattioli, a 10-year industry veteran who shares duties with senior managing directors Sandy Sanders and Walter McCormack. "It could actually accelerate from here as commercial and consumer creditors gain confidence in the recovery. In addition, consumers and certain corporate borrowers are relatively under-levered, compared to long-term averages. They can take on more leverage."

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bank of America Corporation25.98 USD7.00
JPMorgan Chase & Co101.37 USD5.79

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Michael Ryval

Michael Ryval