Sector Snap: Banks rise after sector upgrade

Analyst upgrades view on large banks to 'Attractive,' more cautious on regionals; shares rise

• On 1:52 pm EDT, Monday October 5, 2009

NEW YORK (AP) -- The banking sector got a boost Monday after Goldman Sachs Group Inc. raised its view on large banks to "Attractive" from "Neutral," saying they are on relatively better footing than regional banks.

In a research note, Goldman analysts wrote that investors have failed to recognize the relative strength of large banks such as JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co., compared with regional banks. The difference in earnings power has yet to be reflected in share prices, the note said.

Bank shares have surged during the market's recent rally. Some banks touched near-historic lows in early March.

The positive overall view on banks helped bolster the entire sector Monday. The KBW Bank Index, which tracks 24 of the nation's largest banks, rose 2.2 percent in afternoon trading. The index has more than doubled since it bottomed in early March.

Because of long-term deals completed at low prices during the market's downturn, national banks have increased their earnings power, Goldman said. The analysts pointed to transactions like Wells Fargo's purchase of Wachovia Corp. and JPMorgan Chase's purchase of Washington Mutual as cheap acquisitions that add to the banks' asset bases.

The Goldman analysts remain more cautious about regional banks. Regional banks are more susceptible to rising loan losses as they have less diversified operations to offset loan losses as the economy recovers.

Nearly all banks have been hit hard by the recession as loan losses mounted and investments in risky assets soured.

Wells Fargo, which Goldman Sachs upgraded to "Buy" from "Neutral" as part of the broader sector review, was among the biggest gainers on the day within the banking sector. Goldman raised its price target on the stock to $35 from $31.

Shares of the San Francisco-based national bank rose $1.68, or 6.4 percent, to $27.96.

Goldman analysts believe Wells Fargo's biggest problem, its capital position, should be significantly strengthened during the third quarter through earnings, deferred tax assets and improving securities prices.

Capital One Financial Corp. also surged after the report. Goldman Sachs added the credit card lender and banking firm to a special buy list. Shares of McLean, Va.-based Capital One jumped $2.38, or 7.2 percent, to $35.57.

Comerica Inc. was among regional banks rising the most. Shares of the Dallas-based bank, which Goldman upgraded to "Neutral," rose $1.09, or 3.8 percent, to $29.87.

Separately, Robert W. Baird analyst David George raised his price target on Comerica to $30 from $20. George increased his price target on seven regional banks Monday.

George said third-quarter earnings in the banking sector, which kick off next week, are likely to be mixed amid continuing high levels of loan losses.

Buzz up!