We see opportunity in regional bank stocks, says Citizens' Ryan

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banks have outperformed this year. The KBW Bank Index is up 32% year-to-date versus about 18% for the broader S&P. Joining us now is Devin Ryan, senior research analyst at Citizens. Um, you've got these massive runs, particularly in the big banks. I mean, Citigroup is up about

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71% finally trading above book value uh this year. Goldman Sachs up 58% this year. Morgan Stanley up 43% or 45% sorry uh this year. You think they're expensive? You think they're going to get more expensive in 2026? So, what do you do in that scenario? I mean, do you ride the

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wave up higher or do you say, you know what, maybe if this is the point in time where things are getting a little pricey, I'll just crystallize some gains and and see what happens.

Devin Ryan (Senior Research Analyst) 00:48.320

Great question and I think there's a few ways that we can play this. Well, first off, I think we just step back and and what why are the stocks up so much. So, business was pretty good in 2025. It's probably getting better in 2026. with capital markets still gaining momentum. I

Devin Ryan (Senior Research Analyst) 01:03.160

think the loan backdrop is getting better. And then deregulation and just the ability for banks to really utilize capital and generate better returns on that capital. And so I think those are trends that started in 2025 post-election, those continued. But then the big piece that

Devin Ryan (Senior Research Analyst) 01:19.400

we're talking about as well is just sector rotation and technicals. ETFs in financials saw about $30 billion of inflows last year. And we think that continues in 2026. So So, that's kind of the marginal buyer here, and that's why Goldman's trading six turns above historical

Devin Ryan (Senior Research Analyst) 01:36.400

levels on PE of 2026, Morgan Stanley's five turns above. So, we think that trade can continue, and actually the business momentum into into 2026 is only accelerating. So, we probably stay in some of these names, but then there's other places you can play. I think regional banks,

Devin Ryan (Senior Research Analyst) 01:54.200

we see opportunities there, and then kind of ancillary firms like Schwab or even in some of our fintech coverage that are going to benefit from some of those same themes.

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What do you think can ultimately derail it? What what should investors be on the lookout for as it pertains to just the continuation of this theme? I mean, outside of the macro picture, which obviously that if that deteriorates, then the the whole trade falls apart. But um you

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know there are so many tailwinds here. What are what are some of the biggest risks?

Devin Ryan (Senior Research Analyst) 02:23.640

Yeah, I think that um you know the biggest one really is macro as you just mentioned, but you know you remember back you know not too long ago during liberation day, these were some of the the worst performing stocks. So, yeah, we we've had kind of a 360 here, 180 really around

Devin Ryan (Senior Research Analyst) 02:37.760

you know kind of sentiment. But I think more broadly, we need to see a continuation of this capital markets recovery. Announced M&A volumes were up 40% in 2025, but that was really large deal driven. What we're looking for in 2026 is kind of a continuation and a broadening out,

Devin Ryan (Senior Research Analyst) 02:53.640

meaning financial sponsors reengage. And I think that's going to be very good for banks, both in terms of capital markets activity, but also reigniting some of the lending activity. So we really need to see that play out and then we need to see some of the the benefits of

Devin Ryan (Senior Research Analyst) 03:06.480

deregulation come through. There's a lot of talk about it in 2025, but we need to start to see capital being reallocated internally. We need to see capital being released and returned. So I think those are a couple big things that the market is banking on. If we don't get those,

Devin Ryan (Senior Research Analyst) 03:20.560

people would be pretty disappointed. But But our call right now is that we're probably getting that so the path to lease resistance is still positive here.