After the Big Four banks — Bank of America ( NYSE: BAC ), Citigroup ( C ), JPMorgan Chase ( JPM ), and Wells Fargo ( NYSE: WFC ) — posted Q4 earnings on Friday, Piper Sandler analyst R. Scott Siefers downgraded Wells Fargo to Neutral and Bank of America to Underweight on Tuesday.
"The big emerging pressure point is net interest income degradation," the analyst wrote in a to clients. "It seems likely the 4Q represented a high-water mark here, and a tougher outlook (especially thanks to deposit mix/migration) weighs on our expectations — the starting point for 2024 could be especially tough."
On the positive side, credit is normalizing with no apparent issues on the horizon, and share repurchases are coming back quicker than expected, he said.
On the Wells Fargo ( WFC ) downgrade, "we feel we got everything we wanted from the cost outlook," however, "the NII outlook appears rougher than we had hoped, which overwhelms a better cost base," Siefers said. Seeing that the good cost news is already digested, he sees less upside potential.
For Bank of America ( BAC ), while it's an "excellent company," Siefers said, "we fear there could be further pressure on the NII outlook given trends at its closest peers." Cost control will need to be outstanding to meet his updated expectation, he added. "Given our concerns about the cloudier outlook relative to peers, combined with its strong valuation, we see better opportunity elsewhere at present and suspect the shares could have trouble gaining traction until the picture crystallizes more."
Siefers reiterated JPMorgan Chase ( JPM ) at Overweight and said it gave the most defensible outlook. "Moreover, strong capital and reserves position it well for whatever macro weakness may come," he said.
While Siefers rated Bank of America ( BAC ) Underweight, Wells Fargo ( WFC ) Neutral, and JPMorgan ( JPM ) Overweight, the SA Quant system rates all three stocks as Hold.
SA contributor Librarian Capital said while Bank of America's Q4 earnings were worse than JPMorgan's ( JPM ), but its stock is cheaper.
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Bank of America, Wells Fargo downgraded by Piper Sandler after Q4 earnings