"Preference for U.S. Bank Credits Maintained... Commercial Banks Recommended for Second Half"

On July 18, NH Investment & Securities maintained its preference for U.S. large bank credits and recommended focusing on buying commercial banks starting in the second half of the year. The company also added that, given the valuation pressure on the U.S. banking sector due to concentrated market demand, it is advisable to make staggered purchases if spreads widen.

Kim Junsu, a researcher at NH Investment & Securities, stated in the report "Q2 Earnings of the Six Largest U.S. Banks" released on the same day that the preference for U.S. large bank credits is being maintained, taking into account solid fundamentals and profit growth.

The combined net profit of the six largest U.S. banks in the second quarter reached $145.4 billion, with all banks except Bank of America (BoA) and Citigroup exceeding market consensus. Notably, the trading division revenues of five banks, excluding Wells Fargo, increased by an average of 30% year-on-year in the second quarter.

Kim noted, "Capital adequacy, asset quality, and liquidity conditions are also favorable," and added, "After August, if there is a relaxation of the supplementary leverage ratio (SLR) and the start of capital regulation easing such as Basel III Endgame, there may be a gradual decline in capital ratios, but they are expected to remain at appropriate levels above regulatory requirements." He also pointed out that "although regulatory easing began to appear from the second quarter, the SLRs of these large banks have remained at levels similar to the previous quarter," emphasizing that these major banks are calmly adapting rather than preemptively responding to regulatory relaxation.

However, Kim also highlighted the valuation burden. He stated, "Currently, the spread of the U.S. banking sector is about 75 basis points (1bp=0.01 percentage point), which is 5 basis points lower than the investment-grade corporate bond index," and stressed, "Rather than aggressive buying, we recommend a staggered buying approach when spreads widen."

He further said, "From the second half of the year, the preference for credit instruments of banks with a higher proportion of commercial banking portfolios compared to investment banks will increase," and added, "It is important to note that the benefits from SLR regulatory easing will vary by bank." He also mentioned, "Since JP Morgan and Wells Fargo have relatively large amounts of capital allocated to SLR compared to other banks, they are also expected to secure larger capital surpluses."