These big bank stocks could rise 30% if economy avoids recession, Credit Suisse says

Published Wed, Sep 7 202212:19 PM EDTUpdated Wed, Sep 7 20221:26 PM EDT

Big U.S. banks are on track to meet analysts' third-quarter earnings expectations, thanks to good loan growth and rising interest rates, according to Credit Suisse . With a few weeks remaining in the quarter, analysts led by Susan Roth Katzke examined key data points for the group. Loan balances for the industry are heading for a 2.6% quarter-over-quarter increase, which combined with higher rates "should support more net interest revenue growth," a crucial driver for banks, the analysts wrote Wednesday in a note. At the same time, loan losses from credit cards and other products are still low, and volatility in markets supports good trading results, although investment banking remains moribund, they added. "Every incremental data point improves the clarity of the fundamental picture," Roth Katzke wrote. Bank stocks have been hammered this year on fears that the U.S. is nearing a recession: The KBW Bank Index has fallen about 20%. But borrowers have held up relatively well , providing a boost to Main Street lending operations as the Federal Reserve raised rates four times this year. The dynamic provides opportunity to investors so long as a recession doesn't create a punishing wave of defaults. The companies, which begin reporting third-quarter results next month, are expected to post about 3% revenue growth from the second quarter, and per share earnings that jump 7%. The biggest risk to these estimates is tied to the "health of the markets," including markdowns on assets amid market upheaval across asset classes. The analysts see about 20% total returns on average across the large cap U.S. banking group if the Federal Reserve can successfully combat inflation without inducing a recession, but the group faces "~25% downside to discount a mild recession," according to Credit Suisse. The analysts' "highest conviction recommendations," however, could return around 30%, and include Bank of America, Goldman Sachs and JPMorgan Chase , according to Roth Katzke. — CNBC's Michael Bloom contributed to this story.