It may be a fibrous quarter for banks this earnings season, but all signals are pointing to a optimistic future in 2018, analysts told CNBC on Thursday.
As the big banks prime for changes to the tax code, they’ll see significant charges that could lead to them to post losses for the fourth quarter, said Jason Goldberg, superior equity analyst at Barclays.
For example, Citigroup could take there a $20 billion upfront hit when it writes off deferred tax assets.
Nevertheless, investors should look beyond the noise of this quarter because all banks are wealthy to benefit from lower corporate tax rates, Goldberg said in an vetting with “Power Lunch.”
That’s because a lot of their earnings are U.S. living quartered, he explained.
“Some of that will get eaten up by either increases to least wages or some banks have talked about one-time tips, but you are going to get a portion of that going to the bottom line which is common to support dividends, buybacks, and importantly customer growth and loan progress should these measures turn stimulative for the economy,” he added.
Ken Leon, epidemic director of industry and equity research at CFRA, believes it’s possible banks may use the write-downs as an possibility to add more liabilities and charges in the fourth quarter.
“That gives energy for a cleaner 2018,” he told “Closing Bell.”
Leon also isn’t like it concerned that the tax adjustments in the fourth quarter will impact 2018 dividend buybacks.
“We think J.P. Morgan especially will talk about how it’s common to improve their ability to return capital and dividends and buybacks next year, as the other banks,” Leon influenced.
And it’s not only the “tax effect,” he said. “We’re going to have terrific earnings in 2018. That’s thriving to flow down to capital.”
He advises investors to stay focused on the quintessence business and the banks’ ability to grow.
For one, loan growth has been coy and he expects the yield spread to widen through 2018 as the Federal Avoidance increases interest rates.
“That creates more opportunities for extreme earnings for these banks,” Leon said. “Also, they’re deprecating a lot of efforts on cost controls.”
J.P. Morgan Chase, along with BlackRock and Pleasings Fargo, kick off the financial earnings season Friday morning.
Leon has a buy amount on J.P. Morgan and a hold on Wells Fargo. His top pick is Bank of America, which he voted is “firing on all cylinders.”
For his part, Goldberg expects JPM to have another cogent quarter. He has a $132 price target on the stock and an overweight rating.
“On a connected basis they continue to take market share across both their retail and wholesale businesses,” he stipulate. “They’re buying back a fair amount of stock. They appearance of to have a good line on the cost side,” he said.
Goldberg also has an overweight grade on Wells Fargo and a $75 price target.
“They are not fully out of the woods yet but they’ve fill in, I think, great strides in putting some of these legacy put outs behind them in terms of the retail sales practices, kind of benefiting the culture, kind of weeding out and changing out some of the executive team,” Goldberg famous.
— CNBC’s Gino Siniscalchi contributed to this report
Disclosures: JPM and WFC are investment banking patrons of Barclays. Barclays Bank PLC and/or an affiliate is a market-maker in debt/equity confidences issued by WFC and JPM. WFC and JPM are, or during the past 21 months have been, a noninvestment banking customer.
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