The 2013 All-America Research Team: Banks/Large-Cap, No. 2: John McDonald

It’s four consecutive years at No. 2 for John McDonald of Sanford C. Bernstein & Co. “John is fantastic at translating the numbers into the narrative for a particular stock,” cheers one money manager. “He’s not afraid to ask the tough questions and quickly gets to the heart of investors’ concerns.” Large-cap banks are poised to reap the advantages of housing gains over the next few quarters and of rising interest rates and a better economy over time, McDonald believes. So the speed and shape of the U.S. recovery — and their implications for housing markets, interest rates, capital markets and loan demands — are key. He is also closely monitoring “the final stages of implementation of regulatory reform, and specifically the finalization of capital requirements for the nation’s largest banks.” The results, he says, will determine how much excess capital the banks have and how quickly they can return it to shareholders. He’s advising investors that Citigroup’s stock offers the best risk reward because the New York–based bank is likely to see a near-term boost from improvements in the U.S. mortgage market that will reduce credit costs and legal expenses for its Citi Holdings unit. Furthermore, he thinks Citi is at or near regulatory-capital levels and will be able to ramp up its capital return for the next several years, for a variety of reasons. Longer term, financial services’ growth in Asia and Latin America will benefit Citi’s core business, McDonald concludes. — Carolyn Koo