What Oppenheimer Learned From Banks' Earnings Season

Earnings season for the financial institution space has come and gone. According to Oppenheimer's Ben Chittenden, the "fundamental backdrop for profitability remains under pressure," and a sustained rate hike cycle is needed to "truly change the direction of profitability."

Chittenden noted that while the second quarter was better than expected for the group, upside did come from seasonal and volatile fee items. As such, the revenue environment hasn't "changed all that much" from what was previously expected, and the analyst struggles to see how the industry can cut additional expenses in their businesses.

"With credit seeing certain categories turning already we think that the
industry is more prone to negative surprises than positive surprises over the next
12–18 months," the analyst added. "There will certainly be company-specific opportunities, but although valuations aren't expensive vs history we think the profitability picture needs to improve to really get the stocks to re-rate higher."

Related Link: 8-Ks, 10-Qs And 10-Ks: How Investors Use SEC Filings

After exiting the quarter, Chittenden continues to recommend owning Citizens Financial Group Inc (NYSE: CFG) and his sentiment on U.S. Bancorp (NYSE: USB) has become "incrementally more positive."

On the other hand, the analyst has become "incrementally more negative" on BB&T Corporation (NYSE: BBT) and PNC Financial Services Group Inc (NYSE: PNC).

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