J.P. Morgan analysts keeping a bearish stance on small- and mid-cap banks given downside risk factors on net interest margins and credit quality, two of the biggest "needle movers" for regional banks' earnings. Still, they upgraded one bank, First Hawaiian Bank, ( NASDAQ: FHB ), as its earnings appear less vulnerable.
The analysts, led by Steven Alexopoulos, downgraded KeyCorp ( NYSE: KEY ), Huntington Bancshares ( NASDAQ: HBAN ), Live Oak Bancshares ( NASDAQ: LOB ) to Underweight and upgraded First Hawaiian Bank ( FHB ) to Neutral. KEY shares fell 1.5% in Tuesday late morning trading, HBAN -2.5% , and LOB slipped 1.8% . FHB rose 1.3% .
"In terms of NIMs, we see a deposit beta playbook being used by management teams as being overly optimistic, and in terms of credit, given how strong the current environment remains, we don't think that provision assumptions will move to more realistic levels until the industry start working through an actual economic downturn," Alexopolous wrote in a note to clients.
Specifically, the analysts are looking for banks with a resilient earnings stream and strong growth of intrinsic value. Their top pick is First Republic Bank ( FRC ) followed by Cullen/Frost Bankers ( CFR ).
SVB Financial ( SIVB ) is also seen as less vulnerable in assessing 2023 EPS estimates is SVB Financial ( SIVB ) as well as First Hawaiian ( FHB ). They see favorable risk/reward for Comerica ( CMA ) and Pinnacle Financial Partners ( PNFP ).
The SA Quant rating puts a Sell rating on both Live Oak ( LOB ) and First Republic ( FRC ), with Neutral ratings on Huntington ( HBAN ), KeyCorp ( KEY ), First Hawaiian ( FHB ), and Cullen/Frost ( CFR ).
SA contributor Sheen Bay Research, with a Neutral rating on FHB, explains that next year's earnings outlook is already priced in
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JPMorgan keeps bearish view on regional banks, but upgrades First Hawaiian