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Compass Point initiates JPMorgan, Citi at 'sell'

Initiations

Compass Point Research & Trading LLC analystCharles Peabody initiated coverage of money center banks, noting that there are"more risks than rewards" for the sector over the next 15 months.Specifically, the analyst began coverage of Bank of America Corp., JPMorgan Chase & Co. and

The analyst gave BofA a "neutral" rating anda 12-month price target of $13, which reflect the company's "greaterleverage to higher interest rates, as well as its more domestic businessorientation." Despite the "neutral" rating, Peabody expectsBofA's shares to continue to trade at a discount to tangible book value,arguing that the consolidated entity is "unlikely to earn its cost ofcapital in the current economic expansion."


JPMorgan was initiated with a "sell" ratingand a $50 price target. Peabody believes the company's balance sheet no longersets it apart from other money center banks, arguing that Citi currently hasthe strongest capital ratios. In addition, the analyst is concerned aboutJPMorgan's growing exposure to commercial real estate lending, noting that manyin the industry are either tightening standards or lessening exposures. Headded that the company's CRE reserve ratio has been slowly decreasing.   


For Citi, Peabody initiated the company with a"sell" rating and a $39 price target. The analyst expects Citi'sstock to continue to trade at a discount to TBV because of the absence ofearnings momentum coupled with the possibility of an inflection point in thecredit cycle. The analyst added that a robust return of capital program,improved quality of earnings within Citicorp, and declining exposure to Citi Holdings willmost likely support Citi's share price in the near future.


Sandler O'Neill & Partners analysts Peter Ruiz andStephen Scouten initiated FBFinancial Corp with a "hold" rating and a $22 pricetarget. The analyst cited the Nashville, Tenn.-based company's "dynamicearnings profile," "strong currency" and "sound M&Apipeline."

Transferredcoverage

FBR & Co. analyst Stephen Moss, who joined FBR inSeptember from EvercoreISI, took over coverage of RegionsFinancial Corp. and BB&T Corp. from analyst Paul Miller Jr.

Moss also assumed coverage of , which waspreviously covered by analyst Bob Ramsey.

Downgrades

In assuming coverage of Regions, Moss downgraded theBirmingham, Ala.-based company to "market perform" from"outperform," resulting from "a more conservative outlook forrevenue growth versus the Street." The analyst projects continued slowloan growth into 2017, and noted that net interest margin pressure is expectedin the second half of 2016, but should stabilize by 2017. The analyst gave thecompany a $10.50 price target.


Moss assumed coverage of BB&T with a "marketperform" rating, down from "outperform," and lowered the pricetarget to $40 from $45. The downgrade, according to the analyst, was due to amore conservative outlook for NIM/net interest income — which resulted in lowerEPS estimates. The analyst projects fee income for the third quarter to be"flattish" on a linked-quarter basis given the of the Winston-Salem,Ky.-based company's loss-share agreements with the FDIC in September.

Upgrade

Moss assumed coverage of Prosperity Bancshares andraised the rating to "outperform" from "market perform,"due to valuation and possible improvement of Texas' economy. According to Moss,the valuation does not reflect the Houston-based company's improved earningsquality and franchise value. He also projects loan growth to improve 2.6% forthe second half of 2016, and 5.1% for full-year 2017. The analyst also raisedthe price target to $60 from $55.