Why there may be more pain ahead for US banks
Despite the rally in financial stocks Wednesday, there may be more pain ahead for U.S. banks, Fitch Ratings' Joo-Yung Lee said Wednesday.
The financials took a hit after the U.K. voted to leave the European Union on Thursday, and have been attempting to recoup their losses. The financial exchange-traded fund, XLF (NYSE Arca: XLF), was up more than 2 percent Wednesday afternoon, but was still down for the week.
Lee told CNBC's " Power Lunch " that Brexit may weigh on the profitability of U.S. global banks.
"With the Brexit, we think that there will be some restructuring charges ahead of them in terms of having to potentially pivot away from the U.K.," said Lee, who is the head of North American financial institutions for Fitch Ratings.
"Clearly it depends on how the trade agreements are worked out."
What's more, the Brexit vote means it is less likely the Federal Reserve will hike interest rates anytime soon, she added.
"It is lower for longer, which creates additional challenges for U.S. banks in terms of that earnings pressure," Lee explained.
Despite that challenging rate environment, Jason Goldberg, managing director and senior equity analyst at Barclays, is optimistic about U.S. banks. Valuations are low, yet loan growth is running above historical averages and credit quality is fairly benign, he said in an interview with "Power Lunch."
On top of that, he expects the vast majority of banks to increase their dividends and buybacks after the release of the Fed's latest stress tests Wednesday.
"We think the industry as a whole can return an excess of $80 billion back to shareholders, which is quite substantial and we think at some point provides support to these stocks," he said.
Meanwhile, Brexit will also continue to be a factor for the overall stock market , strategist Kristina Hooper told "Power Lunch."
"Don't expect us not to have some stumbling blocks in the future because of negotiations. This is going to be a long, drawn-out process," the U.S. investment strategist for Allianz Global Investors said.
That's because Article 50 , which will start the process of the separation, probably won't be invoked until a new prime minister is elected in October, she explained.
"There is much more to come in the way of rhetoric and negotiations that could at times send the market downward and at times send it upward."
How the new Europe looks remains to be seen, so there are many unanswered questions, she said. However, there is good news.
"This is not a Lehman-type event where decisions need to be made quickly and we move from crisis to crisis. We have the luxury of time, so hopefully cooler heads will prevail," said Hooper.
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