Why bank stocks could surge 50% in the next 18 months, according to a Wells Fargo analyst

• Mike Mayo, Wells Fargo senior banking analyst, told CNBC bank stocks could increase by 50% in the next 18 to 24 months.
• He explained that banks are experiencing the highest buildup of reserves in history.
• Mayo said that he thinks the foundations of the banks are strong, and earnings could be like a "coiled spring" if and when there's positive light on the economy or a vaccine for the coronavirus.
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Mike Mayo, Wells Fargo senior banking analyst, told CNBC on Wednesday that bank stocks have the potential to increase by 50% in the next 18-24 months.

"I think it's under-appreciated how much heavy lifting the banks are doing and how they'll be able to pump their way through this," Mayo said.

The analyst explained that banks are experiencing four "100-year events" at the same time: The decline in net interest margin, traditional banking revenues, and total revenues are each the worst in a century. And, the buildup in reserves has been the highest in history.

"So we talk about heavy lifting, banks right now have a level of reserves for problem loans equal to half the level actually experienced in the global financial crisis," Mayo said. He said that he thinks the foundations of the banks are strong, and earnings could be like a "coiled spring" if and when there's positive light on the economy or a vaccine for the coronavirus.

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The SPDR S&P Bank ETF closed up 2.17% on Wednesday at $31.52. According to CNBC, Bank of America has been up 8.83% since Warren Buffet's recent Bank of America buying spree. Mayo said the billionaire investor has purchased shares in Bank of America for 13 days in the last three weeks. Buffett now has an 11.9% stake in the bank, worth $25.8 billion. Bank of America closed at $25.39 on Wednesday.

Mayo said Buffet is a "serial buyer in BofA" and he thinks the investor is on the right track.

Mayo added that he thinks the largest banks, including Bank of America, JPMorgan, and Citigroup, are capturing more share in digital banking and they have more scale than smaller banks to control expenses. "Even while these revenue headwinds are once-in-a-hundred-year events, the ability to control expenses we think will distinguish this recession over others," he said. He added that his one word for banks would be "strength."