Analysts Says 'Don't Buy The Big Banks,' Deutsche Bank Cuts Rating

Deutsche Bank downgraded Bank of America Corp BAC and JPMorgan Chase & Co JPM to Hold rating from Buy, reflecting a cautious view on the banks, including ongoing macro risks and likely weakening bank fundamentals.

Key downside risks include a prolonged downturn/recession, resulting in higher-than-expected credit costs and a weaker capital markets backdrop driven by macro uncertainty.

The analyst upgraded PNC Financial Services Group Inc PNC to Buy from Hold with a price target of $190, down from $200. 

The analyst believes new lows seem likely for U.S. bank stocks but says PNC will remain among the most defensive in the group given its "strong" credit underwriting, strong capital allocation decisions, and consistently solid cost control. 

Deutsche also downgraded Truist Financial Corp TFC to Hold with a $48 target down from $61.

Truist has "disappointed several times" on costs, had questionable capital deployment post the merger, loaded up on low-rate long-term securities at the wrong time, and mixed other trends in many areas.

Media reports that the company could IPO a portion of its broker-dealer may suggest unlocking value "but could also point to an underlying earnings issue," writes the analyst.

Bank earnings kick off next week. Deutsche expects net interest income and loan growth to remain strong in 4Q while sluggish fees. Expenses could be slightly higher, and charge-offs should be in line. 

Investment banking fees should be much weaker, down almost 60% Y/Y on average, as uncertainty and higher market volatility slowed issuance in underwriting and M&A.

Goldman Sachs Group Inc GS seems bullish on the recovery of global mergers & acquisition deals in the second half of 2023 that fell over 33% to $3.78 trillion in 2022. Several Wall Street giant banks had to cut jobs on lower M&A activities.

For 2022-2024, Deutsche analysts lowered estimates by 3% for FY22, 5% for FY23, and 4% for FY24. On average, 1% below consensus for FY22 and mostly in line with consensus for both FY23 and FY24.

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