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It's a Good Time to Buy Into Bank Stocks: Analyst

Saturday, 12 Jan 2013 | 1:27 PM ET
Is it Time to Bank on Financials?
"The housing market is going to continue to grow and that's going to be a real driver to the success of the banks this year," said Gerard Cassidy, RBC Capital Markets analyst, explaining how economic optimism and more regulatory transparency are fueling the bull market in financial stocks.

Banks are valued below historical norms and the worst of the new financial regulations are already done, and that has banking analyst Gerard Cassidy upbeat about bank stocks.

"We were bullish all of last year," Cassidy, of RBC Capital Markets, told CNBC's "Squawk Box." "We continue to be bullish this year due to the continuing improvement in earnings, coming from credit improvement and also loan growth."

Banks' earnings season kicked off Friday with Wells Fargo reporting results that beat analyst predictions, although shares fell after profit margins disappointed. Goldman Sachs, JPMorgan, Bank of America, Citigroup, Morgan Stanley are all reporting in the coming week.

With banks trading just barely above book value across the sector, Cassidy says it's good time to buy even a banking index fund. "We think in the future (banks) will trade at 1.5 times book value, and that's down from 2.3 times book value from 1997 to 2006."

Although Dodd-Frank regulations and the dreaded Volcker rule lie ahead, "When you take a look at the regulatory issues for the regional banks and the vast majority of banks, the most onerous ones have already been put into place," he said.

"When we look at the future for the banks, the issue is the net interest margin because of the low interest rate environment. If the yield curve starts to steepen as we've seen in the first weeks of 2013, that will alleviate net interest margin pressure. So profitability should continue to improve for the entire group."

In particular, Cassidy likes Discover Financial, Fifth Third (reporting earnings Thursday), PNC Financial and Wells Fargo.

He said the continuing growth of the housing market, and the loan activity that comes with that, will offset some of the negative effect of austerity measures being discussed in Washington.

No disclosures were available for this article.

Follow @Matt_Twomey on Twitter.

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