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Financial Services: Global Bank Rout Is Overdone

Generally overblown fears of energy-related credit losses, global deflation, and potential interbank contagion are increasingly weighing on the sector.

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  • Our overall financial services sector valuation remains attractive at a price/fair value ratio of 0.78.
  • We see concerns over the U.S. banking outlook as generally overblown, particularly with regards to energy exposure, lower-for-longer interest rates, and counterparty risks. We do expect 2016 to face headwinds from an earnings and capital perspective, as regulators could potentially rein in capital requests in the upcoming CCAR.
  • In Europe, we see similarly overblown concerns though we acknowledge the recovery will be slow and difficult. We do see the recent ECB actions around negative interest rates as a positive for the group, however.

Jim Sinegal does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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