Bank Rally Could Have Legs: Sandler's O'Neill's Harte

Although investors have shied away from the financial sector in recent months, Thursday's rally in financialscould "have legs," said one Sandler O'Neill principal.

While "exteme fear" drove a move away from financials in August and September, not owning financials puts investors behind as opposed to ahead now, said Jeffery Harte, a principal at Sandler O'Neill.

"I do think, especially some of the more beat-up, big financial stocks could still see kind of a run ahead of them as we find out that the economic numbers aren't all that bad, and we finally now are seeing a political will out of Europe to recognize the problems and start dealing with them," Harte told CNBC.

A big part of what hurt financial stocks' earnings in the third quarter was a lack of capital markets activity and losses in trading, Harte added.

"It wouldn't take much for things like investment banking and trading to be a lot better than they were last quarter," he said. "I try not to read too much secularly in the quarter-to-quarter fluctuations in some of the trading revenue line items."

Harte said investors might get "a little more immediate gratification" from Citigroup or Morgan Stanley , but that Bank of America shares could also rise.

"The attractive thing to BofA here is if the U.S. economy doesn’t get really bad and housing doesn’t really tank, I think a lot of the loss expectations people have out there could prove overly aggressive, and you could see a big move in BofA shares, but it’s probably going to take some time and some patience," Harte said.

He added that the woes of commodities and futures brokerage MF Global do not seem to be affecting Wall Street much. MF Global has hired at least two investment banks to review its alternatives after its stock price plummeted this week.

"It doesn't seem as though liquidity or credit is freezing up for the masses," Harte said. "It seems to be — at least at this point — more of a MF-specific thing."

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Disclosures:

Jeffery Harte has an investment banking client conflict in the companies mentioned in this video.

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