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PacWest downgraded after earnings report

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PacWest downgraded after earnings report

Downgrades

* A couple of analysts downgraded the stock rating of PacWest Bancorp following the company's earnings report.

Raymond James' David Long lowered the rating to "outperform" from "strong buy" and the target price by $3 to $52.

Long noted that core deposit costs rose higher than expected at the Beverly Hills, Calif.-based company and a change in loan mix has pressured yield. That said, "peer-best profitability metrics" should improve after the Oct. 20 close of its CU Bancorp acquisition.

FBR's Steve Moss lowered PacWest's rating to "neutral" from "buy" and the target by $5 to $50.

Moss similarly commented on the deposit cost increase, but noted that 41% of total deposits are noninterest-bearing and that the company's 93.5% loan/deposit ratio supports asset sensitivity. The analyst, however, cut the 2018 EPS estimate to $3.10 from $3.35, as net interest margin and loan growth may disappoint.

* Compass Point's Laurie Havener Hunsicker downgraded Western New England Bancorp's rating to "neutral" from "buy," after a shareholder activist slashed its stake.

Johnny Guerry's Clover Partners now owns only 2.0% of the Westfield, Mass.-based company, prompting Hunsicker to "believe the WNEB is no longer in play as an acquisition candidate." A sale might have fetched $12.50 to $14 per Western New England share.

The price target was lowered by a dollar to $11.

Industry report

* And Compass Point's Isaac Boltansky went through the shortlist of Federal Reserve chair candidates.

A renomination of the incumbent, Janet Yellen, would likely be welcomed by markets looking for "continuity in a period of global instability," the analyst wrote. Concerns that someone originally nominated by former President Barack Obama will be a hindrance to President Donald Trump's deregulatory thrust may be alleviated by Randal Quarles' appointment as vice chair of supervision, Yellen's vote against AIG's SIFI designation and the Fed's support for pausing the implementation of certain Basel 3 requirements.

Fed Gov. Jerome Powell is "a solid centrist," who is likely to survive another confirmation process. His appointment will pull the regulator's normalization trajectory "forward only modestly."

And Stanford University Professor John Taylor, if appointed, would signal "a sharp shift toward hawkish policy" but he will probably find that "throwing rocks from outside the Eccles Building is easier than lobbing them from the big chair."

Also reportedly still on the shortlist are former Fed Gov. Kevin Warsh and National Economic Council Director Gary Cohn, but Boltansky noted that their stocks seem to have fallen.