Wall Street Transcript Interview with Brad Hintz, Equity Research Analyst at Sanford Bernstein & Co., LLC: Financial Services Rise as U.S. Interest Rates are Expected to Rebound

Wall Street Transcript

67 WALL STREET, New York - June 28, 2013 - The Wall Street Transcript has just published its U.S. Banking Review 2013 Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: U.S. Banking Review 2013

Companies include: Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), Charles Schwab Corp. (SCHW), TD AMERITRADE Holding Corporat (AMTD), IntercontinentalExchange, Inc. (ICE), CME Group Inc. (CME), State Street Corp. (STT), The Bank of New York Mellon Co (BK), Northern Trust Corporation (NTRS), BlackRock, Inc. (BLK), Invesco Ltd. (IVZ), T. Rowe Price Group, Inc. (TROW), CME Group Inc. (CME), Franklin Resources Inc. (BEN) and many more.

In the following excerpt from the U.S. Banking Review 2013 Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Where are we today in the cycle? And what names should investors consider?

Mr. Hintz: At this point, the U.S. economy appears to be slowly rebounding while interest rates remain low. The EU economy remains weak. This is positive for the North American capital markets businesses for the investment banks. Equity underwriting volumes are increasing, and financial sponsor advisory activity appears to be increasing.

Among our coverage group, Goldman Sachs has the highest percentage of revenue coming from investment banking, and therefore its earnings are most sensitive to a rebound of banking. We have an "outperform" rating on Goldman. Morgan Stanley's earnings are less somewhat sensitive to investment banking, despite controlling a powerful banking franchise.

We have an "outperform" rating on Morgan, which is largely driven by its depressed valuation. Looking forward, the next part of the cycle is related to interest rates. And if the U.S. economic rebound becomes self-sustaining, then we expect the Federal Reserve's quantitative easing program to end.

We believe that Bernstein's clients should consider early-stage, interest-sensitive stocks as an investment theme. In our sector, the early-cycle rate plays are the Chicago Mercantile Exchange and Charles Schwab. The CME has a 98% market share of U.S. dollar interest rate futures. As investors anticipate rising U.S. interest rates, hedging activity on the exchange will increase, and CME revenues will accelerate.

Charles Schwab earnings will also rebound as rates rise. Charles Schwab has a very large money market business, and the low interest rates of the past few years have forced the firm to rebate over $500 million per year of the fees. This will drive earnings up by 4 cents or 5 cents per quarter per share. We have "outperforms" on CME and SCHW...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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