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Thursday

Blog

Banking Essentials Newsletter - February Edition, Part 2

Podcasts

StreetTalk – Episode 74: Investor sees legs in strong credit performance, US bank stock rally

Blog

Street Talk – Episode 74: Investor sees legs in strong credit performance, US bank stock rally

Blog

The Evolution of ESG Factors in Credit Risk Assessment: Environmental Issues


Thursday

Downgrades

Marty Mosby downgraded eight large-cap banks following a reboundin stock prices since February, and ahead of first-quarter results that the ViningSparks analyst expects to come under pressure.

In February Mosby upgraded the large-cap U.S. banks he coversto "market perform" or better "as prices became disconnected fromfundamentals" on the back of sharp market declines. Prices have since recoveredsome of their losses, leading the analyst to lower his ratings on , Fifth Third Bancorp, KeyCorp,Northern Trust Corp. andZions Bancorp. to "marketoutperform" from "strong buy." He downgraded Bank of New York Mellon Corp., First Horizon National Corp. and M&T Bank Corp. to "market perform" from "marketoutperform."

"While the Large Cap U.S. Bank stock prices have reboundedfrom February lows, this group is still underperforming the overall S&P 500Index by more than 10% year-to-date," Mosby wrote. He said delayed capitaland CCAR announcements and weak guidance for first-quarter earnings have been theprimary negative catalysts for the group. Although he expects first-quarter earningsto be even lower than the current market consensus, he expects earnings for fullyear 2016 will be better than expected for the money-center and trust banks, especiallyGoldman Sachs Group Inc.and Northern Trust.

The analyst lowered his 2016 EPS estimates for the large-capgroup by 2% to reflect pressure from lower capital market activities, increasedloan loss allowances, lower loan loss recoveries and diminished custody and assetmanagement fees. He said the changes did not affect most price targets, althoughhe raised the target price for Bankof America Corp. and HuntingtonBancshares Inc.


Matthew Forgotson, a Sandler O'Neill & Partners LP analyst,lowered his rating for Billings, Mont.-based First Interstate BancSystem Inc. to "hold" from"buy" on valuation while maintaining his price target of $30.

The analyst raised his 2016 EPS estimate to $2.13 from $2.10,reflecting slightly higher mortgage banking revenues, and reiterated his 2017 EPSestimate of $2.29.

Forgotson noted that First Interstate's stock price increased12% following its fourth-quarter 2015 earnings results, compared to an 8% increasein the Nasdaq Bank Index. He calculated that the company shares are currently 178%of tangible book value per share and 12.6x his 2017 EPS estimate.

"We continue to believe that a slight valuation discountis warranted by FIBK's thinner ROA, its dual class ownership structure, as wellas its indirect exposure to oil and gas," the analyst wrote.

Discontinued coverage

Boenning & Scattergood analyst Matthew Schultheis discontinuedhis coverage of Allentown, Pa.-based NationalPenn Bancshares Inc. as the company will retire its shares on and become a partof BB&T Corp. His finalrating on National Penn shares was "underperform."