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Vining Sparks downgrades large-cap banks

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Vining Sparks downgrades large-cap banks

Downgrades

* Vining Sparks' Marty Mosby and Mason Mosby on Oct. 5 downgraded the stock ratings of Bank of America Corp., First Horizon National Corp., M&T Bank Corp., Regions Financial Corp. and Zions Bancorp.

They were lowered to "market outperform" from "strong buy" after large-cap banks outperformed the market by almost 10% in the past three weeks. The analysts gave BofA a price target of $29, First Horizon a target of $22, M&T $180 and Regions $17.50. They raised Zions' price target by $2 to $55.

* Piper Jaffray analyst Brett Rabatin downgraded Dallas-based Triumph Bancorp Inc. to "neutral" from "overweight." He raised the price target, however, by $2 to $34.

Rabatin wrote that the stock could have "some additional modest upside ... but not enough" for continued recommendation.

* Sandler O'Neill & Partners' Andrew Liesch lowered Great Southern Bancorp Inc.'s stock rating to "hold" on valuation.

The price target is $59. The Springfield, Mo.-based company's stock had closed at $56.80 on Oct. 5, climbing from Sept. 7's $48 close.

Initiation

* Compass Point now covers Wells Fargo & Co.

Charles Peabody rated the stock "neutral" and gave it a $55 price target.

Peabody expects the company's cost-saving initiatives to show up on the bottom line in the latter half of 2018, and for year-over-year earnings momentum to not pick up until then. The analyst estimates 2017 EPS of $4.11 and 2018 EPS of $4.35.

Vertical Group's Dick Bove, meanwhile, advises caution on the stock.

The company "has done so poorly" since the crisis through 2016, Bove argued. Net interest margin has "been in free fall" and mortgage banking revenue has roughly halved over the years.

The analyst emphasized that his admonition is not scandal-related, writing that Sloan is "doing a superb job" and that the board is "evolving." The question, Bove said, is whether the new Wells Fargo can still drive revenue higher.

Coverage Assumed

* Over at Piper Jaffray, Nathan Race and Matthew Clark have assumed coverage of five banks: Commerce Bancshares Inc., UMB Financial Corp., Old National Bancorp and First Merchants Corp. at "neutral" and Enterprise Financial Services Corp. at "overweight."

The analysts raised Commerce's target price by $5 to $60 and First Merchants' by $2.50 to $46. Enterprise's price was increased by $1 to $49. UMB and Old National have price targets of $74 and $19, respectively.

Industry report

* Hovde Group analysts looked at online deposit data for seven companies with either branchless banking or a significant online banking presence, and they expect industry-wide pricing pressures to hit those companies the hardest. That said, a growing gap between their rates and those of traditional banks will build pressure on the latter.

For online deposits, the average savings rate rose 16 basis points in the third quarter to 1.16%, after increasing only 6 basis points in the prior quarter. The average money market rate was up 11 basis points to 1.02%, they added, compared to the second quarter's 5-basis-point increase.

* And, on the subject of lower corporate taxes, Piper Jaffray analysts pointed out how a lower federal rate could translate to higher state taxes. They calculated that California- and New York-headquartered banks will see the least benefit from the proposed changes at the federal level.

Compass Point analysts, meanwhile, expect New York Community Bancorp Inc.; California's BofI Holding Inc.; Alabama-based Regions Financial; and Texas-based Texas Capital Bancshares Inc., Prosperity Bancshares Inc. and LegacyTexas Financial Group Inc. to be the biggest beneficiaries, EPS-wise, based on their current rates and the limited hit to tangible book value from possible impairments to deferred tax assets.