(Bloomberg) -- Wall Street's focus on Silicon Valley has helped lift shares of Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. to new highs and is likely to keep fueling gains for the biggest bank stocks, according to analyst Mike Mayo.
“I'm living in my hoodie” as long as tech keeps boosting banks' revenue and trimming their expenses, said Mayo, who covers the sector at Wells Fargo, in a phone interview. In October, Mayo shed his suit jacket on Bloomberg TV to show his commitment to transforming himself into a “techie” from a bank analyst.
Mayo reaffirmed Citigroup, BofA and JPMorgan as his top picks as the sector continues to focus on fintech opportunities such as digital banking, electronic payments and the use of artificial intelligence. The three were the best performers among the top 40 banks, by assets, in 2019, with Citigroup soaring about 53% while BofA and JPMorgan both gained 43%. Those gains outpaced the KBW Bank Index, which rallied 32% last year, and the S&P 500, which rose 29%.
The three banks extended gains in Thursday trading, with Citigroup touching the highest since January 2018 and JPMorgan at one point rallying to a record.
In September, Mayo said the 2020s would be the “decade of technology for banks,” citing a shift to digital delivery, via computers and software, from physical delivery, via branches and people.
Mayo noted that bank stocks had a great year in 2019 even though “traditional” metrics, like net interest margins and lending growth, were less than stellar, and even as capital markets were “sluggish.”
While some of the bank stocks' gains were “catch-up” after 2018's underperformance, he said the three largest banks “trouncing” the rest of the sector reflected the “revamping of banking with technology.”
The third quarter was a “turning point,” he added, as revenue grew faster than expenses. He expects revenue growth will keep outpacing costs in 2020, “enabled by the tech transformation.” JPMorgan and Citigroup are due to report fourth-quarter earnings on Jan. 14.
Read more: Earlier, Wells Fargo Cut at Baird as It's ‘Getting Weird' for Banks
--With assistance from Vonnie Quinn.
To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk
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