2023-06-29 09:04:50 ET
Citizens Financial Group ( NYSE: CFG ) stock dipped 1.8% in Thursday premarket trading after J.P. Morgan downgraded shares of the regional bank to Neutral from Overweight as its capital requirement is set to increase and thus pressure profitability.
Results of the Federal Reserve's 2023 stress tests indicated that Citizens' ( CFG ) stress capital buffer could rise the most among the 23 banks that were tested. The additional cushion is determined by the bank's hypothetical losses in the stress tests, so the buffer gets lifted should losses be larger.
The bank's SCB is estimated to rise by 70 basis points to 4.1%, analyst Vivek Juneja wrote in a note, which would drive up its common equity tier 1 (CET1) ratio to 8.6%.
"Citizens has a lower cushion relative to peers above minimum CET1 requirements among our banks based on 3/31 levels and has continued to buy back stock in 2Q," Juneja pointed out, noting high losses on its commercial real estate loans are also pressuring the bank given high level of maturities of office CRE loans this year and next.
The banks' "increase in capital erosion in DFAST ‘23 was driven by increased loan loss provisions."
The Neutral rating aligns with the SA Quant system rating of Hold and diverges from the average sell-side analyst rating of Buy.
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For further details see:
Citizens Financial bull rating removed at J.P. Morgan after stress test