When Donald Trump was deemed the winner of Tuesday’s election, a lot of people were very disappointed. However, bank stockholders were not part of that group. When the businessman-turned politician came out on top, banking stocks jumped as investors snapped up shares in hopes that a Trump presidency would be a lucrative one for the sector.
Not only are investors expecting Trump’s policies to help bolster the bottom line for big-name firms, but the Republican candidate is expected to loosen regulations in the financial sector that many believe have been tying banks’ hands and undermining their profits.
One of Trump’s campaign promises has been fewer regulations and government intervention into the financial sector. He heavily criticized the Obama administration’s decision to intervene and said that the Dodd-Frank overhaul was detrimental to the industry. Now, with Republicans controlling Congress and Trump set to become commander in chief, it looks like bank stocks are in for a real treat as regulations are loosened and restrictions reworked.
Bank stocks as a whole will see a lift during Trump’s four-year term, but Bank of America Corp (NYSE:BAC), Zions Bancorp (NASDAQ:ZION) and Signature Bank (NASDAQ:SBNY) are all poised to see gains as high as 50% over the course of Donald Trump’s time in office.
Over the last 10 years, bank stocks have gained about 3% for every percentage point of growth in U.S. GDP. Without regulatory oversights weighing on them, that figure could be expected to increase to 4% or 5%. Assuming U.S. GDP continues to grow by 2% or 3% each year, banking stocks that benefit the most from Trumps policies will be on the upper end of that scale.
With that as a backdrop, here’s an in-depth look as to why these three bank stocks are stocks to buy.
Bank Stocks to Buy: Bank of America Corp (BAC)
As far as large-cap banks go, BAC stock is likely to be one of the largest beneficiaries of Trump’s time in the oval office.
It remains to be seen how Trump’s policies will affect big-name banks because although he has been a proponent for rolling back regulations, he has also been careful not to show too much leniency toward the “too-big-to-fail” entities that angered the population during the financial crisis.
However, Bank of America is likely to benefit from Trump’s time in office whether he improves the regulatory environment for big banks or not.
Most are expecting that Trump will push for interest rate hikes, which would be a boon for BAC. The bank stands to gain an additional $6 billion worth of interest income if the Federal Reserve raises interest rates, something that makes the stock a good prospect.
Bank Stocks to Buy: Zions Bancorp (ZION)
Mid-cap banks are a good place to start when looking for financial sector stocks that will rise during Trump’s term in office. ZION is one such bank whose shares have already gained more than 13% since Tuesday.
Trump has criticized the regulations placed on the sector during the financial crisis, saying that they are suffocating smaller banks, a sentiment that Zions has been touting for years. With assets of just over $60 billion, ZION is subject to the same stress tests that its much larger peers undergo, but that threshold, which currently sits at $50 billion worth of assets is likely to change under the Trump administration.
That means smaller banks like ZION won’t undergo those tests and can take larger risks in order to generate returns.
Bank Stocks to Buy: Signature Bank (SBNY)
Small-cap banks are poised to benefit the most from Trump’s policies because his plans to roll back regulations will give them more room to grow. Dodd-Frank increased compliance costs for all banks, but the effect was disproportionate as small banks were harder hit by the new costs.
It’s unclear whether Trump will completely do away with Dodd-Frank regulations that keep banks from engaging in “risky” behavior, but his rhetoric on the campaign trail suggested that he would most certainly loosen the restrictions at very least for small banks like SBNY.
Not only that, but Signature Bank is poised to gain tremendously from an interest rate increase. SBNY is a high-growth option and reduced regulations will allow the bank to expand even faster in the years to come, while an interest rate hike will give the firm’s interest income a boost.
As of this writing, Laura Hoy planned on initiating a long position in ZION within the next 48 hours.