Keefe, Bruyette & Woods Says End Of QE Signals Start Of Good Times For Bankers

The Federal Reserve's halt to so-called quantitative easing signals an approaching rise in interest rates and wider lending margins for banks, an analyst said Monday.

Likely trends spell "good news for U.S. bank stock investors," Keefe, Bruyette & Wood's Frederick Cannon said in a note.

Assuming rates start to rise, wider credit spreads and a shift back to variable rate lending from fixed rates should boost the sector's stock values, Cannon said.

"Of course, when the Fed actually raises rates is still guesswork," Cannon added.

Cannon's current top picks Monday: JPMorgan Chase & Co. JPM and Goldman Sachs Group Inc GS.

Cannon also launched coverage on Citizens Financial Group Inc CFG with an Outperform rating and $28 target.

Citizens, a Rhode Island regional bank holding company, was spun out of the Royal Bank of Scotland Group in September in a $3 billion initial public offering.

Citizens is in the midst of a turnaround and Cannon sees the potential for a dividend hike of 18 percent in 2015 and 28 percent in 2016.

Citizens last week said its adjusted third-quarter earnings fell 38 percent while net interest income grew 6 percent.

Among banks rated at Outperform by Cannon Monday are EverBank Financial Corp. with a $21 target, Heritage Oaks Bancorp with an $8.50 target, Investors Bancorp Inc. with a $13.50 target and MB Financial Inc. with a $35 target.