JPMorgan cut to Hold, BofA and Wells Fargo raised to Buy at Deutsche Bank
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Deutsche Bank downgraded JPMorgan Chase (NYSE:JPM) to Hold from Buy and upgraded Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) to Buy from Hold as the analyst Matt O’Connor highlights “shifting opportunities” in a banking sector that he views as “somewhat in no man’s land.”
The JPMorgan (JPM) downgrade reflects the stock’s outperformance year-to-date, which provides less upside potential for the near to medium term. Good news that’s already been priced into the stock includes strong net interest income, solid trading, some recovery in investment banking with optimism for more to come, and solid credit, O’Connor wrote in a note to clients.
Furthermore, JPM has noted that buying back stock at the 2.2x-2.3x tangible book level it was trading at around the May investor day wasn’t attractive.
For Wells Fargo (WFC) stock, recent weakness created an attractive entry point. “In the near term, one could argue there’s been a fair amount of de-risking given the lowered outlooks on both net II and capital (on the July call) and as regulatory risks seem more priced in than they did a few months ago,” the analyst said.
He also sees some longer-term positives, chiefly the Federal Reserve eventually lifting the asset cap it placed on the bank in 2018. In addition, O’Connor sees continued benefits in such businesses as trading, investment banking, and credit card.
Bank of America’s (BAC) upgrade is also due to the stock’s recent weakness. Shares have lagged the Nasdaq Bank Index (BKX) by almost 10% over the past six weeks, due to Berkshire Hathaway’s (BRK.B) (BRK.A) recent pruning of its BAC holdings and potential concerns on net interest income growth as the Fed is set to cut rates and sluggish industry-wide loan growth.
Yet O’Connor points to a number of positives: net interest margin should normalize higher as low yielding assets get repriced or roll off; its leaning into investment banking and trading; solid expense management; and its strength in underwriting credit.
The SA Quant system aligns with Deutsche Bank’s ratings on the three banks, ranking Wells Fargo (WFC) and Bank of America (BAC) at Strong Buy and JPMorgan (JPM) at Hold. Meanwhile, the average SA Analyst ratings and average Wall Street ratings have Buy ratings across all three banks.