Why bank stocks are best way to play reopening trade

Jamie Dimon

Adam Galica | CNBC

(This story is for CNBC Pro subscribers only)

Banks have been among the most hated of stocks since the pandemic struck this year, forcing lenders to put up tens of billions of dollars in preparation for an expected tsunami of bad loans. Now a silver lining is emerging.

The four biggest U.S. banks – JPMorgan Chase, Bank of America, Citigroup and Wells Fargo – have amassed a nearly $100 billion pile of cash for loan loss reserves as of the third quarter. The broader industry has created its largest collective reserve since 2010, when mortgage defaults sparked a recession that required massive bailouts of banks and other companies.

But the story may end differently this time. A combination of factors – promising vaccines that should enable a U.S. economic reopening, surprisingly resilient bank customers and the expectation that lawmakers will approve another round of stimulus – should allow banks to begin releasing reserves in the second half of 2021, according to five bank analysts surveyed by CNBC.

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