Bank stocks have sold off this year on fears that an impending recession will rock the industry with rising debt defaults. But that reflection is an example of recent bias and ignores some of the key differences in the US financial industry after the 2008 financial crisis, Oppenheimer analyst Chris Kotowski said Friday in a note. Research report. “The narrative has turned to the idea that inflation is so hot that the Fed will have to raise rates to the point where it will push the economy into a recession, and if we’re in a recession, you know for sure you’re not,” Kotowski said. Looking at the three most recent recessions, Kotowski said investors are fearful of the possibility of another 2008 scenario, in which bank stocks are at the heart of the financial crisis. it’s because of the housing bubble in that cycle, bank stocks don’t bottom out until the end of the downturn – a good reason to avoid the sector now if you think a repeat is imminent “If you look at the 2008 recession, you see what everyone was afraid of,” the analyst said. “Banks don’t bottom until the end of the recession, and stocks are weak. and volatility for years afterward.” But the current environment reminds Kotowski of the 2001 recession most, not 2008, he said. i do not see a surplus of residential or commercial real estate or other large assets with long lifespans. “Indeed, the bank numbers with very strong loan growth and rising interest rates still suggest a very strong economy. It is possible to spend less on certain goods, but spend on services. service and T&E looks strong.” And in the 2000-2001 analogy, bank stocks bottomed out well before the recession officially started – 13 months, according to the analyst. Much of the industry’s profits, he added, came during the tumultuous months before the downturn began. “If one waits around for a recession to hit, one misses out on BKX’s 29.5% gain during the time period that the S&P is down 8.6%,” Kotowski said. “It’s a relative performance move to miss.” During the previous 1989-1990 recession, bank stocks bottomed early in the recession and partially recovered towards the end of the recession, he added. So every recession is different, and the fixation on 2008 is purely recent bias, he concluded. Thanks to a tighter regulatory regime, better underwriting standards and capital levels that have nearly doubled since the 2008 crisis, banks are in good shape, according to the analyst. more to deal with the next recession. “We expect that whenever the next recession hits, the asset quality of banks will remain significantly better than usual and the team will reassess their historical levels,” Kotowski wrote. it”. The Oppenheimer analyst writes that the entire sector is “too cheap” as it trades for about 50% of price relative to earnings, compared with a historical average of more than 70%. While Kotowski says Goldman Sachs, Citigroup and Silicon Valley Bank are probably the cheapest banks to buy right now, he favors Bank of America, US Bancorp and JPMorgan Chase “to a lesser extent”. That’s because they benefit most from strong interest rates and strong loan growth, which will boost their core banking operations, driving revenue beyond cost growth, he said. speak. “There are probably more advantages in the long run for some of the other names, but the reverse here is also very positive, and we expect it to work sooner,” said Kotowski. “We think the operating leverage at BAC and USB will be very clear over the next 2-3 quarters.”