Skip to main content


Audience for the document: Share Class: Language of the document:


Share Class: Language of the document:

Change Details

If you need to change your email address please contact us.
You are ready to start subscribing.
Get started by going to our products or insights section to follow what you're interested in.

Products Insights

GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. T. Rowe Price has been independently verified for the twenty four-year period ended June 30, 2020, by KPMG LLP. The verification report is available upon request. A firm that claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides assurance on whether the firm’s policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific performance report.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

Other Literature

You have successfully subscribed.

Notify me by email when
regular data and commentary is available
exceptional commentary is available
new articles become available

Thank you for your continued interest

Please enter valid search characters

July 2021 / U.S. EQUITIES

Sector Insights: The Potential Recovery of U.S. Bank Stocks Enters a Second Act

Key Insights

  • We see the recovery of banks amid the pandemic playing out in two acts. The first act has ended. Banks have recovered from extreme valuations.
  • In the next act, the focus will be on potential loan growth amid subdued expectations. Our leading indicators are more positive than consensus.
  • We believe the Fed has the tools to deal with moderate inflation, and we’re still excited about the anticipated recovery ahead for bank stocks.


Through last year’s uncertainty, the most powerful insight we identified was the impact of the CARES Act mortgage forbearances.

This program, along with rent relief and bank deferrals, provided quick and long-lasting help for the households that needed it most. CARES Act forbearances continue to be more powerful than unemployment benefits or stimulus checks. This was a foundational insight that led to us bet early on banks last year, especially when the market was debating the odds of additional stimulus.

To highlight the importance of forbearance, in the global financial crisis (GFC) we had seen mortgage delinquencies more than doubled to 10%.

Last year’s shutdowns drove mortgage delinquencies near to GFC levels, with over 8% of loans delinquent. But nearly all of these were on forbearance. This means over 3 million households received needed help. This compares to about 1.3 million through the Home Affordable Modification Program offered in the global financial crisis. This highlights just how much additional help was provided this past year.

A downturn as deep and as swift as the one we saw last year would typically hit banks hard. The speed and broad eligibility of mortgage forbearance was a key difference on why that didn’t happen.

As we think about reopening, the reason mortgage forbearance is still so important is that, unlike past recoveries, consumers have preserved credit records and built savings, and they are not burdened by delinquencies. This means there’s broader firepower for consumers to drive the recovery forward.

We see the recovery of banks playing out in two acts.

We think the first act is over. That’s when we saw credit fears and concerns that the U.S. financial system may ultimately look like Japan or Europe with their negative interest rates. Banks have recovered from extreme valuations with the Nasdaq Bank Index (BKX) recovering 109% this past year compared to a 46% gain for the S&P 500.

The next act that is about to start is about recovery of loan growth, liquidity deployment, and potentially higher interest rates versus normal valuations and still subdued expectations.

When we look at estimates, we think the post-global financial crisis experience is weighing heavily on the minds of other analysts. Then, banks were severely damaged and that recovery one of the slowest on record.

This recovery is different, but it’s not without precedent. This has been more like a natural disaster playbook than a recession. Here’s what I mean:

I cover Banco Popular in Puerto Rico. Following the hurricanes in 2017, I visited the island. I visited major retail centers, many of the pharma and manufacturing facilities, and I even chartered a helicopter to inspect the electric transmission line repairs throughout the mountains. I was shocked to see how much activity was preserved in Puerto Rico—it was like nothing being shown on the news. What I gathered from that trip was the mortgage forbearance offered by the banks in large scale was able to save the consumer and prevent widespread credit deterioration. Consumer spending defied many expectations. It was through that experience that I see similarities with the CARES Act mortgage forbearance program. In both cases, I think mortgage forbearance was a key bridge to rebuilding and now reopening.

Other analysts seem to be focused on the experience of the global financial crisis, with consensus only expecting about 1.5% loan growth to 2022. Loan growth is still muted right now, but our leading indicators are more positive, while the headwinds to loan growth at the same time are at peak historical levels. Commercial and industrial line utilization is under pressure as supply chains are rebuilding, and credit card payment rates are the highest on record with the benefit of stimulus. Normalizing these headwinds could lead to over 10% loan growth for both categories.

As we think about earnings options across loan growth, excess liquidity deployment, and potentially higher interest rates, we think normalized earnings per share could be 25% higher even with potentially higher taxes. This would put bank valuations three turns lower than historical levels. This is why we want to be patient through this second act.

However, we are closely watching inflation. Supply chain and labor shortages are already driving inflationary signals with no shortage of recent headlines. One example: Lumber is adding $36,000 to the average new home price in the U.S.

In terms of policy and environment backdrop, the ingredients relative to past inflationary cycles are already here. Prior patterns have included a shift in policy to favor full employment above inflation, sustained monetary policy accommodation of fiscal deficits, questioned central bank independence, and unanchored expectations. Wartime spending has also proven inflationary—to which COVID and the war on the virus closely resembles.

We do expect some transitionary pressures to abate, but for these reasons we think there are greater odds of higher inflation over a multiyear period, especially since we think housing is likely to become more inflationary to CPI as home price appreciation sees less offset from lower interest rates.

We believe the Fed has the tools to deal with moderate inflation, which is why we expect earlier tapering and rates lift off. This would likely be a positive for bank loan growth and net interest income if done methodically and before excesses build. Relative to in-line valuations for the group, higher rates is an attractive free option rather than an explicit macro bet.

These issues—the CARES Act, the road to recovery, and inflation, among others—are creating both opportunities and risks. In some ways, we’ve used a cyclical opportunity to make secular bets.

There’s no shortage of disruption from fintech and maybe even things like a central bank digital currency. As examples, we’re focused on banks like PNC that have made the move to real-time versus overnight batch processing. PNC’s scale and investments are allowing it to expand nationally with products that rival the fintech’s best. These investments are also allowing it to consolidate the industry with accretive M&A.

Another example is a predominant credit card company, Capital One, which was under extreme pressure last year. Yet it’s one of the only banks in the world to reengineer its technology stack from the ground up as part of its cloud migration.

We also see idiosyncratic opportunities like Wells Fargo, which is making progress on its regulatory work that we believe represents one of the most promising turnarounds within financials.

Despite recent strong performance in bank stocks, we’re still excited about the recovery ahead, especially if bank technology and infrastructure investments accelerate.


This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.  

It is not intended for distribution to retail investors in any jurisdiction.

Canada—Issued in Canada by T. Rowe Price (Canada), Inc. T. Rowe Price (Canada), Inc.’s investment management services are only available to Accredited Investors as defined under National Instrument 45-106. T. Rowe Price (Canada), Inc. enters into written delegation agreements with affiliates to provide investment management services.

© 2021 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.

Previous Article


How ESG Considerations are Reshaping Central Bank Mandates
Next Article

July 2021 / VIDEO

Opportunistic Investing in a Dynamic High Yield Market: Video Series

You are now leaving the T. Rowe Price website

T. Rowe Price is not responsible for the content of third party websites, including any performance data contained within them. Past performance cannot guarantee future results.