Deutsche Bank: 3 Ways To Buy The Banking Dip

Matt O'Connor of Deutsche Bank offered investors three names within the US Banking space to invest in following the recent pull back in bank stocks. O'Connor noted that bank stocks are down 13 percent since their highs in late July and have underperformed the nine percent decline in the S&P 500 index. The analyst added that the sell-off was attributed to global growth concerns and "mixed emotions" over a September Fed tightening. "Stocks are no longer pricing in material rate increases (we believe just one to two increases by the end of 2016 are being priced in)," O'Connor wrote in his note. "This makes asset sensitive banks somewhat tempting. However, they haven't sold off any more than high quality large regionals have. Given this, we prefer moving up the quality spectrum." With that said, the analyst upgraded shares of

,

and

to Buy from Hold with no assigned price target. O'Connor continued that "it makes sense" to become "more aggressive" on higher quality banks (i.e the three stocks he upgraded) given the lack of differentiation, the increase in market (and economic) volatility/uncertainty. In addition, these banks may prove to be "better positioned" to succeed in a higher rate environment than is perceived given "large sticky core deposit bases." O'Connor expanded, noting that PNC Financial Services could benefit from a cost savings program (highlighted during the second quarter conference call), flexibility to deploy liquidity/add securities, very good credit and risk management, and minimal exposure to capital markets related areas. Moving on to US Bancorp, O'Connor argued that the stock has fallen over concerns of slowing revenue and higher expenses. However, the company has "no meaningful" exposure to the capital markets and has one of the best risk management and credit profiles in the industry. In addition, the company generates the highest returns of peers (second quarter ROTCE of 19 percent versus the Super Regional group's average of 12 percent). Finally, Wells Fargo can also benefit from additional cost saving initiatives while excess liquidity provides flexibility to allow the company to take advantage of higher rates. In addition, its exposure to capital markets is "less than market sensitive" banks and brokers.