WBS - UBS starts coverage of 19 mid-cap banks with relatively cautious view

2023-03-15 12:43:30 ET

UBS on Wednesday launched coverage of 19 mid-cap banks in the U.S. with a "relatively cautious" view, given macroeconomic and interest rate uncertainty.

Funding and credit will likely be negatively hit in a higher-for-longer environment. "We think consensus is behind the eight ball on deposit growth and mix through 2024, both of which will weigh on net interest income revisions," said analyst Brody Preston. "We also model for a mild recession in 2024, which is not in consensus and will potentially be worse the longer rates stay higher."

UBS' Highest Conviction Buys

• Western Alliance Bancorp ( WAL ): Buy, $85 PT. "We view WAL's exposure to more volatile tech/innovation deposits as manageable, and believe its credit profile is fundamentally misunderstood."
• New York Community Bancorp ( NYCB ) Buy, $10 PT. Rating driven by higher earnings outlook, stock trading at steep discount.
• Webster Financial ( WBS ) Buy, $56 PT: "WBS' earning capacity is greater than what the market has priced in."

UBS' Highest Conviction Sells

• First Citizens BancShares ( FCNCA ) Sell, $538 PT: Rating driven by expectation of lower NII/higher credit costs. "We think the risk of de-rating is elevated given legacy-CIT related credit risk."
• Texas Capital Bancshares ( TCBI ) Sell, $51 PT: "Consensus earnings and current valuation look stretched."
• Cullen/Frost Bankers ( CFR ) Sell, $107 PT: "Balance sheet is not well set-up to protect the margin for declining rates in 2024 and multiple is ahead of where it should be in the current environment."

SA contributor Cavenagh Research is very bullish on Western Alliance ( WAL ), but warned that this is a very high-risk trade .

For further details see: