Goldman Sachs Answers 10 Critical Questions About Regional Banks

In a new report, Goldman Sachs analyst Ryan Nash lists the 10 questions that U.S. regional bank investors need to be answering in the second half of the year. Nash also gave Goldman’s take on the best answers to the questions at this time.

Here’s a breakdown of the 10 questions:

1. What will higher rates mean, and could there be upside versus current expectations?

Goldman sees about 1.0 percent upside to consensus EPS for regional banks and lists Comerica Incorporated CMA, PNC Financial Services Group Inc PNC and M&T Bank Corporation MTB as the three stocks with the most to gain from rising rates.

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2. If oil stays at $45 a barrel, what is the downside scenario for the most exposed banks?

Goldman projects that the book values of the most oil-exposed names, including Zions Bancorporation ZION, Comerica and Regions Financial Corp RF, could take hits of up to 3.0 percent if oil prices remain at current levels.

3. Are there ways for American Express Company AXP to unlock value, or are we just waiting for headwinds to subside?

If American Express can shift more toward a capital-light model and implement a broader cost restructuring, Goldman believes that it could add up to $0.90 in EPS.

4. What is the best self-help story in the group?

According to Goldman, Zions has done the best job of all in increasing operational efficiency.

5. Can SunTrust Banks, Inc. STI achieve its below 63 percent efficiency target, and what is a realistic expectation for 2016?

Goldman believes that SunTrust can hit its target and make it to 62.5 percent by 2016.

6. What should we expect to hear at Regions’ November 19 investor day?

Goldman is calling for a $125–$150 million cost program and a 60–62 percent efficiency target.

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7. What is the right number for Discover Financial Services DFS’s expense and efficiency for 2016?

Goldman is predicting no more than $3.5 billion in expenses and about 38.3 percent efficiency.

8. Are there strategic actions at Capital One Financial Corp. COF that are worth pursuing?

Goldman believes that the company could potentially boost its bottom line by increasing its focus on high-margin retail bank and commercial bank operations.

9. Is taxi medallion a big issue for Signature Bank SBNY, and does it need to raise growth capital?

Although Goldman believes taxi is a “minimal” EPS concern, the firm does see the potential for a capital raise within the next year.

10. Will Hudson City Bancorp, Inc. HCBK/M&T ever close?

Goldman doesn’t know which way the Fed will rule, but the firm expects a decision by the end of September.

Disclosure: The author holds no position in the stocks mentioned.