Fed cut rate by June 2026 will fuel bank stocks, says RBC's Cassidy

David Faber (Co-Anchor) 00:00.000

Financial's been a stand-out this year. The group pushing to record highs. The macro backdrop, of course, has been favorable. Continues to evolve. Though joining us now RBC Capital Markets Co-Head Financial Research, Gerard Cassidy. Gerard, you've been bullish all year. It's

David Faber (Co-Anchor) 00:14.840

been the right call. What do you think in heading into next year?

Gerard Cassidy (Co-Head of Global Financials) 00:18.600

David, thank you and thank family on the program. The outlook remains real positive. The trends that we saw develop in 2025 are expected to continue into 2026. Especially, when you think about the yield curve, David, the steepening of the curve is very positive for banks. And if

Gerard Cassidy (Co-Head of Global Financials) 00:37.640

the Fed cuts another 25 or 50 basis points between now and the June, let's call it, that's going to be added fuel for the bank stocks we think, particularly the regional stocks in 2026.

David Faber (Co-Anchor) 00:50.920

The regulatory side can be a bit harder to measure, but certainly it does seem as though there is more room so to speak. Wells Fargo obviously has been a benefit Fisher in terms of the asset cap coming off, but more generally speaking, how do you sort of define the regulatory

David Faber (Co-Anchor) 01:05.720

environment and how favorable is it right now for the banks?

Gerard Cassidy (Co-Head of Global Financials) 01:09.840

David, you really put your thumb on a critical issue for the banks, which is the regulatory environment has changed dramatically from the prior administration to the current set of regulators. We've never seen it move this so quickly. And the biggest change is yet to come, which

Gerard Cassidy (Co-Head of Global Financials) 01:28.000

is the Basel III end game which is a big proposal on the capital levels for all the largest banks. But when you look at the proposals that the regulators have brought forth already, they are very constructive and supportive of the banking industry and if the Basel 3 end game

Gerard Cassidy (Co-Head of Global Financials) 01:45.120

proposal comes in as supportive as what we've seen so far for the other regulations that they've put forth, then you should see profitability for the group to grow, which is very positive for valuations.

Sara Eisen (Co-Anchor) 01:58.560

What does that mean for the regional in particular or the super regionals, which haven't performed as well as some of them the bulge bracket or money market groups like the city groups and Goldman Sachs which have done better than regionals. Do they have their catch up in in 26?

Gerard Cassidy (Co-Head of Global Financials) 02:12.960

Sarah, good good point. And And the money centers and the investment banks have done extraordinarily well this year. Due to the strength of the capital markets, particularly the mergers and acquisitions, the advisory business has been remarkably strong. I think this year, might

Gerard Cassidy (Co-Head of Global Financials) 02:28.360

go down as the best year. behind 2021. And so the regionals we think will catch up to the big banks in 2026 because of what I referenced a moment ago, which is the steepening of the yield curve, that will lead to better spreads and the regional banks generate a greater

Gerard Cassidy (Co-Head of Global Financials) 02:46.000

percentage of revenue from net interest income which should give them a leg up. Now all the banks will benefit but maybe the regionals more. The second loan growth, I think what you're going to find in 2026 is the banks now will get back back to lending more aggressively, and

Gerard Cassidy (Co-Head of Global Financials) 03:02.800

you could see loan growth surprise to the upside, particularly on C&I, commercial and industrial loans. As well as commercial real estate, remember, the banks have been shrinking the commercial real estate portfolios. We think they're going to only inflect in 2026.