You're watching...
Keefe, Bruyette & Woods Director of Research Fred Cannon on the outlook for the U.S. financial sector.
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
The highway and just -- downgrade of major banks by Moody's is coming god.
Now that the cloud has been lifted what are the best bank debts for your portfolio.
Fred -- is the managing director of equity research at KPW.
So friend would let that.
All of this.
I've I like domestic banks I mean after this while this was a clearing moment it's -- the all clear signal.
On those large globally interconnected banks.
But I think if you come back home -- you look at the financials you continue to see banks that are competing well against those big guys.
And don't have some of those same hang ups but Fred you know even when all -- new information that we have out of this Moody's a rating -- -- We still don't know exactly how exposed there we still don't know exactly how much paper.
They have how much you'll paper they have -- -- Not really I mean what we do know how much papers out there there's 250 trillion dollars derivatives contracts written.
But he's five banks but we really don't know what the exposures mean especially because we get and a quarter information we don't know what's going on every day -- -- -- so it's still a big -- It's still -- big risks that's -- The ratings agencies while they -- completely behind the April didn't move but the stock prices yesterday so obviously they matter a little bit.
Well they do matter a little bit because really it was expectations they've been signaling -- -- as you know it seems like forever since February.
I'm and it was really wouldn't live with Morgan Stanley gonna get two notches are three notches downgrade that does have an effect on their operations.
And as a result the stocks did move on that and you know a new collateral requirements as a result of some of these new ratings there's some people say that this is.
Gonna put even more of a squeeze on those small businesses that are haven't such a tough time getting loans -- -- -- the banks will.
We'll squeeze even more than they already have is that a possibility is that the put another headwind in front of our economy.
I don't think so because remember while those five banks face this there's a lot of competition we saw a lot of banks out there.
Healthy banks across the country who do want to land the real challenge right now is the constraints.
They were seen based on lending standards right in that it.
If you're -- good client now you you have banks going after you with loans a problem is that a lot of people still have those legacy problems from financial crisis.
You know who want CME in particular came out the big winner even though it still was downgraded to not just what about as an investment bank though.
How does this affect them they mean they are they were downgraded does this affect business going forward.
Certainly does and and one of the things it's ironic I think to look back on the reason hitting get downgraded more was that they have the backing of Mitsubishi big Japanese banking.
How far we've come.
Didn't need the backing of the Japanese bank but it does affect him because it affects the derivative business and remember Morgan Stanley somewhat unique they're derivatives are held -- -- holding company not the banks the banks tend to have our.
Deposit funding and higher rating so this does affect their business and will have a the long term -- let's get right to your -- JPMorgan.
End goal the -- of sex by the way is one of the few banking stocks it was down a little bit today.
That was as a result I think it's a legal problem that -- they lost that may be revisited seder but why do you like Goldman Sachs JPMorgan.
Well -- first of all we would recommend be underweight this group of large banks.
That said within those we like the strongest ones and that's really Goldman Sachs and JPMorgan.
There's still the the winners and here they still happen the highest capital and we think that the best place to -- Any changes in the smile -- midsize banks at this point I mean the big ones are still scary as you mentioned earlier.
They're still not a lot of transparency would you invest in them smaller midsize banks instead.
We do we like this and in particular the smaller ones those under fifty billion.
We really like that group there's a lot of banks in there.
We have baskets of those that we recommend but we also like some the larger ones we think US -- in particular is is doing very well domestically and is really beating up on the statement right now.
By the way -- got to ask her boys always ask you about suntrust is suntrust one of those small ones did you like.
Even though it's not cutbacks have not really Smart idea we think suntrust suntrust interestingly in our -- trades with some of the discount of those big ones but doesn't have the same issues that we do like suntrust a lot we think it's a great franchise.
Fred cannon KBW good to see if Fred thank you so much appreciate -- it's great beyond banks.
