Whitney: Banks Are Best Opportunity in '4 or 5 Years'

Tuesday, 18 Dec 2012 04:34 PM

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U.S. banks hold tremendous investment growth opportunities, with dividends in some cases poised to quadruple, said noted Wall Street analyst Meredith Whitney.

Banks are very well capitalized and the economy is turning, poising the sector to report stellar earnings next year.

The Federal Reserve, meanwhile, must approve banks' plans to issue dividends or buy back stock, and the U.S. central bank will be more likely to give the green light to most plans to return capital to shareholders, meaning fewer hiccups will plague the sector than in the past, such as when Citi's plan failed a Fed stress test.

"There's an incredible growth opportunity within the financials, particularly Bank of America, Citigroup, Discover Financial—and there are others," Whitney told CNBC.

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"I think the underlying support is housing is close to bottom, so that is a great headwind relief for banks... They've come a long way."

"I have not seen an opportunity like this in four or five years."

Bank of America, for example, could quadruple dividends payment to shareholders, Whitney added.

"And that's conservative," Whitney said. "They could do two times that."

Bank profits have been firming as the U.S. economy improves and sparks loan growth.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported a aggregate net income of $37.6 billion in the third quarter of 2012, up 6.6 percent from the $35.2 billion in profits the industry reported in the third quarter of 2011, the FDIC reported recently.

Loan growth showed signs of improvement, reflecting fundamental improvements taking place in the sector on top of healthy capital reserves.

"This was another quarter of gradual but steady recovery for FDIC-insured institutions," FDIC Chairman Martin J. Gruenberg said in a statement.

"Signs of further progress were evident in a number of indicators, such as loan growth, asset quality and profitability."

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