Here’s why KBW’s CEO remains positive on the U.S. legacy banks stocks

on Jul 12, 2021
  • KBW's Tom Michaud says bank stocks will react well to higher yields.
  • U.S. big banks are expected to report quarterly earnings this week.
  • Michaud expects more deals between legacy banks and fintech firms.

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The stock market hasn’t been particularly kind to the Wall Street banks over the past few weeks, with stocks tumbling close to 10% after mid-June when the U.S. Federal Reserve released its June monetary policy statement.

Tom Michaud’s comments on CNBC’s “Squawk on the Street”

KBW’s CEO Tom Michaud, however, remains positive on big banks for the next year or two. In his interview with CNBC’s “Squawk on the Street”, he said:

“Bank stocks have underperformed because the macro thesis has changed. In particular, the 10-year yield has declined. But we still believe that the biggest forces that’ll play out over the next two years will come back and remain in place, which is improving economy. We do believe that bank stocks will react well to higher 10-year yield. So, the big picture is still the same.”

The major U.S. banks are expected to report quarterly earnings this week. According to Michaud, investors would be focused on the revenue growth and how do these companies intend to return the capital to the shareholders.

“Investors would want to know the timing of when that revenue growth is going to start to show up. The banks passed the CCAR with flying colours, so investors would also be looking for a little bit of guidance on the capital return story,” Michaud added.

Michaud expects more deals between big banks and fintech firms

The KBW executive also forecasts more deals between the legacy banks and fintech companies in the future. He said:

“The biggest banks and especially JPMorgan are in a terrific position to act. They’ve got terrific capital stature, they have healthy stock prices, and there’s an incredible convergence happening in financial services between fintech and banking, and I expect to see more of these deals.”

Michaud highlighted that JPMorgan Chase & Co (NYSE: JPM) is legally restricted from buying another bank. It’ll have to look for non-bank acquisitions for expansion, and fintech firms are going to be a likely target. JPMorgan acquired the U.K.’s largest robo-advisor firm last month.