Banks have sold off this year on concern that a possible recession will boost loan losses for the group. The KBW Bank Index has lost 15% this year — less than the S & P 500 decline of 17% — and industry bellwethers including JPMorgan Chase recently traded at 52-week lows. Despite the stock selloff, fundamentals in the banking sector have actually been improving, thanks to loan growth, rising interest rates and borrowers that have continued to repay their debts, according to Evercore ISI analysts led by John Pancari. The analysts boosted their 2022 and 2023 earnings per share estimates for the group by 4% and 3% respectively on revised expectations for faster Federal Reserve rate boosts, according to a May 24 research note. Higher rates allow banks to make more money on their core lending operations. While concerns about the group are valid given “downside risk” to bank valuations based on past recessions, there are “select opportunities amid the uncertainty,” Pancari wrote. Specifically, the analysts have identified banks with more exposure to rising interest rates and balance sheet growth as their loans and deposits swell, but also have “less downside credit risk than peers if economic trends weaken more than expected,” he wrote. Their top picks are Wells Fargo , First Republic Bank , Comerica and KeyCorp . Fed officials indicated that they see the need to continue to sharply raise interest rates to combat inflation, according to minutes from their latest meeting, in early May, released Wednesday. With CNBC’s Michael Bloom
