Higher deposit costs will weigh on the big banks, says Stephen Biggar

I want to touch on something that we haven’t talked a lot about on CNBC, but deposits and deposit risk, JP Morgan and Wells Fargo both saying that they had lower deposits coming up. We have Bank of America, a big consumer bank. What are your expectations when it comes to deposits? Yeah, good morning, Frank. So I’m sure deposits have been a a worry spot for banks over the last four quarters since the March failure last year of of banks and hey look that that’s going to continue to be to be an issue not just some deposit run off but higher deposit costs for deposits that stay. So. So it’s it’s produced some pressure on the net interest margin certainly and I think that’s one of the reasons why you know typically as a as a bank analyst you hope for higher rates. Banks are asset sensitive and and tend to benefit from higher rates. But at this point higher interest rates have I think worn out their welcome and I really started to crimp loan growth as well. So kind of double edged sword there. Yeah I think they weren’t out there. Welcome to consumers as well. Important to note Morgan Stanley and Bank of America both trading negatively or trading lower right now. One of the thing we’ve been talking about really wringing our hands about is commercial real estate. We had the CEO of JLL on our air just a few weeks ago saying that the commercial real estate market is bottom. What are you expecting when it comes to commercial real estate and also loan loss provisioning? So commercial role real estate loans have gotten a lot of headlines obviously, but honestly they’ve not really turned problematic according to the banks. They’re setting aside a bit more in terms of loss for visiting there. They’re tightening underwriting standards. Of course when these come due for renewal, you know you’ve got less less cash flow from the properties to the higher vacancies and so forth. So it’s it’s you know it’s it’s a slow train wreck, not kind of a high speed crash. We would say you know broadly speaking loan loss provisions are are very robust right now. They’ve actually come down mostly in the first quarter. So I think that’s a saying banks are saying that they’re they’re pretty pleased with where credit quality stands right now. All right. You have a buy on Goldman, Morgan Stanley and Bank of America. Three of the banks were talking about, but do you have one that’s a top pick in the space right now for investors going forward? Well, JP Morgan tends to be the standout of course it’s a standout on loan growth on you know just the the market share appreciation that they get in across most areas of investment banking, very well reserved, great management team and even without the first Republic edition last May they showed a greater loan growth than than most of the banks. So. So it it tends to get the, you know the kudos I think from from from most analysts. Morgan Stanley of course has a great business model, wealth management doing doing great, you know asset values of 20% over the past year and I think investment banking looks like it’s it’s about to embark on a bit more durable activity after some false starts in 2023. So, so we look for better activity there as the year goes by.