Macquarie's Bear Call On U.S. Banks Just Got Worse

Macquarie has dialed back its below-consensus earnings expectations for U.S. banks as the challenging banking environment continues to persist.

“The environment for banks continues to be challenging, and we are taking a more cautious view regarding near term earnings power by incorporating expectations for higher energy-related loan provisions coupled with a lower assumption for the near term interest rate outlook,” analyst David Konrad explains.

According to Konrad, the recent bank stock rally was in large part due to WTI crude oil’s price rally to around the $40/bbl level, but Macquarie believes that oil prices will soon be headed back to around $30/bbl.

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In addition to earning reductions, Macquarie has downgraded the stocks of Associated Banc Corp (NYSE: ASB) from Neutral to Underperform and downgraded Regions Financial Corp (NYSE: RF) from Outperform to Neutral.

Konrad notes that net interest margins at most banks will likely continue to get squeezed.

While Macquarie sees many small- and mid-cap banks as reasonably valued, the firm lacks to see a compelling bullish catalyst in the space. The firm’s top picks include Great Western Bancorp Inc (NYSE: GWB), MB Financial Inc (NASDAQ: MBFI) and Western Alliance Bancorporation (NYSE: WAL).

Macquarie is most cautious on Texas and Oklahoma banks, including BOK Financial Corporation (NASDAQ: BOKF) and Cullen/Frost Bankers, Inc. (NYSE: CFR).

Disclosure: the author holds no position in the stocks mentioned.