By well capitalized, Cassidy means U.S. banks have more assets than liabilities — which is why he expects they’ll soon be paying shareholders higher dividends.
“This past quarter, when the largest banks went through stress tests, many were allowed to raise dividends and increase their buybacks,” said Cassidy. “We anticipate the industry to give back more capitalin the next 12 to 24 months.”
Cassidy mentions Comerica and JPMorgan Chase as examples.
“JPMorgan suspended their buybacks because of the trading problem, but we expect them to reinstate that buyback once the problem is fixed. I think it will be the second half of this year,” he added.
JPMorgan originally had been approved to issue around $10 billion worth of stock buybacks, before the firm reported a trading loss which may be as much as $9 billion .
Yet, just days before Cassidy made these remarks, Moody’s Investors Service ratings agency downgraded 15 major banks , including those mentioned in this interview. Moody’s believes the long-term prospects for profitability and growth are shrinking.
While Cassidy conceded that “capital markets activity this quarter is slower, and it’s challenging for all players,” he still argues that “growth in commercial lending” and home mortgages will boost the banks.
“ Bank of Americaand Morgan Stanleyare going to do really well in residential mortgage origination,” said Cassidy.
What, if anything, would make Cassidy change his view?
For now, he mentions nothing short of a recession. “Credit problems rise in a recession and that destroys earnings,” he said.
—By CNBC’s Jennifer Leigh Parker
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Additional Views: 15 Major Banks See Ratings Cut by Moody’s ______________________________
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Gerard Cassidy does not personally own shares of BAC, C, JPM, GS, or MS. His firm, RBC Capital, does not have a client relationship with any of these firms.
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