UBS analysts continue to be biased against U.S. banks – Here is why

UBS analysts listed reasons why they are not favoring U.S. banks (TSX:ZWK:CA).

• GDP growth in the U.S. is slowing, while Europe and UK’s GDP growth is accelerating.
• Housing trends in the U.S. are looking less attractive. U.S. homes available for sale are at a four-year-high, and new home investors are close to the highs seen during the Great Financial Crisis.
• Interest rates are likely to be cut in the U.S. more than expected, relative to Europe.
• Lead indicators of loan growth are looking worse in the U.S. than in Europe, according to the Senior Loan Officers Survey.
• Valuations seem demanding when looking at the cost of equity.
• According to the Banks Macro Scorecard, U.S. banks scores close to bottom. Its return-on-equity to price-to-book ratio Z score is -1.22.
• The cost of equity for 2024, however, is around 10.6% for U.S. banks.
• There are signs of stress emerging for credit card and auto loan defaults.
• Lastly, commercial real estate exposure is higher at 8% of assets for large cap banks (and much more for regional banks). Also, held-to-maturity exposure is higher, and liquidity coverage ratios are worse in the U.S. than in Europe.

Nonetheless, these are UBS U.S. team’s top picks for U.S. banks: Citizens Financial Group (CFG), PNC Financial Services Group (PNC), Wells Fargo & Co. (WFC), Truist Financial Corp. (TFC), JPMorgan Chase (JPM).

Other bank ETFs: (IAT), (DJUSBK), (KBWB), (KBE), (FTXO).