Top Stories
Top Stories

Short-term pain ahead for US banks, but there is some good news, analyst says

Big banks 10%-15% EPS downside next 2 yrs: Analyst

Banks should expect some short-term pain after the U.K.'s vote to leave the European Union, CLSA managing director and analyst Mike Mayo said Monday.

Mayo said in an interview with CNBC's "Power Lunch " that he thinks the largest banks have a downside risk of 10-15 percent on earnings per share over the next couple years.

Financial stocks have taken a hit in the days after the Brexit vote last Thursday. On Friday, they dropped 5.4 percent alone, their worse day since August 2011, and were down another 2.9 percent Monday.

The large U.S. banks have some serious issues to contend with, Mayo said. There are extra costs involved with it being more expensive to do business in Europe, plus a risk-off environment isn't good for capital markets, he said. There is also currency risk as earnings are translated back to the U.S., and central banks will be keeping interest rates lower for longer, noted Mayo.

However, there is some good news.

"The U.S. banks are healthy. The European banks have a situation right now," he said. "We think the U.S. banks eat the European banks' lunch. So this could be an epic market share grab over three to five years for the banks."

Plus, domestic banks just passed part one of the Federal Reserve's stress test last week.

"Based on that, the U.S. banks can absorb multiple Brexits and still have strong balance sheets," said Mayo.

He believes there is the potential for earning power. What may cause an issue is if Treasury yields stay low for the next five to 10 years, he said.

However, "if you think things will normalize over time, this could be a unique opportunity to get for the kind of one to five year horizon."

Take advantage of the panic: James Paulsen

David Katz, chief investment officer at Matrix Asset Advisors, also sees the potential for opportunity. While the financials have been beaten down, the fundamentals haven't changed, he told "Power Lunch."

"Even with these very low interest rates, and they are going to stay lower for longer, these companies are still making a good deal of money," Katz said. "If you had a six- or 12-month time horizon, we think they are going to be a lot higher. Short term, very little visibility."

Disclosures: CLSA receives or has received compensation from JPMorgan Chase for non-investment-banking services in the past 12 months.