Why This Bank Analyst Is No Longer Bullish On Ally, Capital One

Banks are entering 2023 in a state of alert as national and global economies slide into a period of ever-increasing uncertainty.

The banking sector starts the new year with record net revenue (before provisions), positive operating leverage, historically low loan losses and delinquencies and sound capital/liquidity, according to a new Barclays note.

Yet a negative macroeconomic forecast on the horizon is expected to bring a flattening of margins, due to including a slowing down of GDP growth or even a recession, increased unemployment and higher interest rates, the analyst firm said Tuesday.

For the overall sector, Barclays said that “despite a slowing economy and possible recession, banks can overcome several hurdles and grow earnings in 2023.”

Ally And Capital One: The Worst Hit In 2023? 

Barclays downgraded Ally Financial Inc. ALLY and Capital One Financial COF from Overweight to Equal Weight.

Barclays cut its Ally price target from $40 to $33 and its Capital One price target from $160 to $119.

For banks catering to lower-end consumers, Barclays is seeing a darker future. 

“We are becoming less constructive on those with outsized asset sensitivity and areas we believe loan losses will adjust the fastest,” says the report.

Lower-end consumers are expected to become the most impacted this year by reduced stimulus, elevated inflation and higher interest rates.

Commercial real estate is another cohort of clients that is expected to face uncertainties in office, retail, health care segments, thus becoming a risk for banks holding them as clients, according to Barclays. 

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