Recession Be Damned: Why Mike Mayo Thinks U.S. Bank Stocks Will Do Well

Bank of America and others should surge 50% next year, gadfly analyst says.

Contrarian analyst Mike Mayo, who made his name trashing big lenders from Bank of America to JPMorgan Chase and losing several jobs along the way, has a rosy view of big banks as the U.S. seems to teeter on the edge of a recession: He is predicting their stocks will balloon 50% in 2023.

“Banks should perform better in an upcoming recession than for any other in modern history,” Mayo, currently head of U.S. large-cap bank research at Wells Fargo Securities, wrote Thursday in a client note quoted by Bloomberg. “Banks have prepared for this moment for over a decade.”

On a day when the S&P 500 slumped 2.5% amid fears that the Federal Reserve would go too far in its tightening drive, Mayo issued a cheery forecast for major U.S banks. Along with the rest of the market this year, the KBW Nasdaq Bank Index is off a third from its all-time high in early January. On the other hand, the index has almost reached its pre-pandemic level of December 2019.

But Mayo and many others have pointed out that the Washington-fueled overhaul of the banking industry, after the global financial crisis of 2008-09, has resulted in far healthier institutions nowadays. Plus, as Mayo argued in his note, higher interest rates should bolster bank profits in the coming year. He added that bank stocks are cheap. BofA’s price/earnings ratio is a mere 10.

One of his top picks, Bank of America endured major suffering as the result of the crisis. BofA recently beat estimates for its third quarter earnings, 88 cents versus 77 cents.

After the market’s March 2009 nadir, with a recession still in process, the KBW index more than doubled. So it’s not unreasonable for it to do well next year.