U.S. Banks’ Business Models Have Big Earnings Leverage

With a tough operating environment behind them, U.S. banks have put greater focus on resource optimization, risk mitigation and cost management. As a result, Societe Generale analysts anticipate that U.S. banks’ business models have significant earnings leverage embedded.

Murali Gopal and the team at Societe Generale, in their report dated June 2, 2014 on U.S. banks entitled “US Banks – Loan growth should lead the recovery; Buy BAC and JPM,” point out that the business models of banks within their coverage universe are capable of supporting mid-teen RoTEs.

US banks’ sustainable RoTEs

The analysts explain that the banks they follow fall in a relatively wide range of expected RoTE. Their bottom-up analysis is based on divisional profitability and their anticipation of returns through the cycle....