Stronger fixed-income, currencies, and commodities trading will help major U.S. banks overcome weakness in equities, but don't expect business to be as good as the boom years of the past.
RBC Capital Markets banking analyst Gerard Cassidy told CNBC Friday the fixed-income business will "more than offset" weakness in the banks' equities business.
He said the first quarter is "traditionally a seasonally strong quarter" for fixed-income trading and he predicts the "numbers we'll likely see this quarter will be quite a bit better than the fourth quarter" of 2011, but probably won't exceed the "truly extraordinary" first quarter of last year.
It will be equities trading, which has been weak this quarter compared with the fourth quarter, "that will lead us into the summer with some type of stronger strength than we’re seeing right now," Cassidy said.
Between 1997 and 2006, banks traded at 2.4 times book value and three times tangible earnings, he said.
"We do not expect that to be repeated because of the lower profitability we’re going to see because of Dodd-Frank," Cassidy said. "But we do think they will trade at 1.25 to 1.5 times book, and 2 times tangible."
His top banking picks are JP Morgan Chase, Citigroup, SunTrust, Regions Financial, and Keycorp.Page 1 of 7 | Next Page