JPMorgan, CBSH downgraded, U.S. Bancorp, Zions, Cadence upped at Morgan Stanley
Morgan Stanley Research shuffled up its rating recommendations on five U.S. lenders on Monday, as analyst Betsy Graseck identified which banks should see the most expansion in net interest margin throughout the Federal Reserve’s monetary easing cycle.
Upgrades:
- Cadence Bank (NYSE:CADE) (to Overweight from Equal-Weight) – should see one of the highest increases in NIM, particularly as deposit costs come down. CADE has one of the lowest skews to floating rate loans and net cash, which minimizes the negative impact of lower rates.”
- U.S. Bancorp (NYSE:USB) (to Overweight from Equal-Weight) – has a relatively high concentration of interest bearing deposits which should reprice quickly as rates fall. This should drive robust NIM expansion in 2025 that is not currently reflected in consensus.
- Zions Bancorporation (NASDAQ:ZION) (to Equal-Weight from Underweight) – net interest income and earnings per share “should benefit as rates move lower.”
Downgrades:
- JPMorgan Chase (NYSE:JPM) (to Equal-Weight from Overweight) – more room for positive NIM surprises elsewhere in our coverage, model negative operating leverage next year and are taking some chips off the table after outperformance.
- Commerce Bancshares (NASDAQ:CBSH) (to Underweight from Equal-Weight) – has less room to cut deposit costs as the Fed cuts rates, given they outperformed peers by a wide margin when the Fed raised rates.
In modeling the path of NIM, Graseck assessed banks’ positioning across six factors: “1) lower deposit costs, 2) improved carry on receive-fixed swaps, 3) fixed-rate loan repricing, 4) securities repricing — fixed and floating, 5) floating-rate loan repricing, and 6) cash/short-term borrowings repricing.”
From there, she calculated the overall “NIM impact to rank the banks on who is best positioned for rate cuts through the end of 2025,” according to a note written to clients.
The takeaway: A faster pace of interest-rate cuts are a boon for mid-cap banks, though more mixed for large-cap banks, she noted. Meanwhile, “lower rates are positive for capital markets revenues, particularly benefitting Large Cap Banks and is, credit positive across both groups.”
In late Monday morning trading, (CADE) gained 2.6%, (USB) edged up 1.3%, (ZION) advanced 2.3%, (JPM) slipped 0.3% and (CBSH) inched up 0.2%.