RBC Capital Markets’ Gerard Cassidy expects financials to exceed Wall Road expectations once they begin reporting this week.

“The large beats are more likely to come from the mortgage loss reserve releasing numbers,” the agency’s head of U.S. financial institution fairness technique informed CNBC’s “Buying and selling Nation” on Friday. “Final yr due to the pandemic, the banking business put aside billions of {dollars} in anticipated credit score losses, and the reserves for these losses weren’t used.”

Financials have been the third worst performing S&P 500 group in 2020, behind power and actual property. To this point this yr, Monetary Choose Sector SPDR Fund, which tracks the group, is up greater than 19%.

In response to Cassidy, that is about to vary. He believes the banking sector might be among the many finest performers this yr as a result of unprecedented financial restoration.

“That was not factored in final yr when the banks put aside this cash to cowl these losses,” he stated. “So, we count on within the first quarter that is going to be the large driver of the earnings beat, partially offset although with slower progress within the internet curiosity revenue and possibly some internet curiosity margin stress as properly.”

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He lists robust administration, its extensive publicity to the U.S. restoration and various income stream because the chief bullish elements.

“Ninety p.c of their enterprise, comes from america,” stated Cassidy. “With the Federal Reserve forecasting the expansion of this nation’s economic system coming in at 6%, they are going to be one of many largest beneficiaries of that progress.”

Cassidy names Credit score Suisse because the financial institution going through probably the most challenges proper now. He cites its huge losses in reference to the Archegos Capital hedge fund implosion.

“There was a lot of administration adjustments over time in that group,” Cassidy stated. “Due to that probably the controls and procedures weren’t as stable as they have been at a few of the home U.S. corporations.”

Shares of Credit score Suisse are off greater than 26% since March 1.

Disclosure: RBC Capital Markets has funding banking relationships and/or non-investment banking relationships with JPM, BAC MS, GS, and CS.

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