Jason Goldberg, Barclays senior analyst, discusses the banking sector going into earnings season and why big banks are still valuable.
Though Democratic presidential candidate Bernie Sanders has pledged to break up the country's largest financial institutions, it is unlikely his rhetoric will have an impact on the banking system — even if he prevails in his quest for the White House, Barclays' Jason Goldberg said.
Banking giants have been in the crosshairs of regulators for years, with the 2008 crisis introducing the public to the concept of being "too big to fail." Ending the concept was a major push behind financial reform regulation in the aftermath of the meltdown, but mega-banks still prevail. According to Goldberg, however, that's a good thing.
Goldberg said that big banks are a necessary component of the financial system, since they are able to make large loans and serve global communities.
One of the major complaints about Dodd-Frank legislation was that it failed to retire the "too big to fail" model. Although institutions like JPMorgan Chase have more than $2 trillion in assets and thousands of subsidiaries, according to research by the St. Louis Federal Reserve , Goldberg told CNBC that systemic risk is lower now than before 2008.
"If you look at the financial crisis, since then, there's been drastic improvements to both the regulatory construct as well as the capital and liquidity that they have," he added. "I think there's a lot less risk today than there was several years ago.There's a need, and they're safe."
In advance of bank earnings season, Goldberg said he believes this quarter is going to be challenging for large banks thanks in part to a weak capital markets environment. He remained optimistic, however, that eventually a lot of the bad news will be priced into banking stocks.
If investors take the view that the U.S. economy will grow, and at some point the Fed will continue to hike rates, this group will become "attractive," according to Goldberg.
"We do think over time, as banks continue to adapt to this new regulatory environment, continue to adjust their business models, and benefit ultimately from higher interest rates, you will see ROEs [returns on equity] trend higher and valuations should expand."
Disclosure: Barclays has received compensation for investment banking services from JPMorgan Chase, Wells Fargo, Bank of America, Morgan Stanley and Citigroup.