While bank stocks may recover slightly after lagging the broad market in 2023, first-quarter earnings updates from big banks may not provide much additional lift as big clouds hang over the sector, JPMorgan analysts said Monday.
Banks continue to face a litany of concerns from inflation to recession to jitters around the banking system after Silicon Valley Bank and Signature Bank folded last month following a rush of withdrawals from deposit holders.
JPMorgan reiterated overweight ratings on Bank of America Corp. BAC, +0.36%, Citizens Financial Group Inc. CFG, +0.76%, PNC Financial Services Group Inc. PNC, +0.26%, Regions Financial Corp. RF, +0.27% and U.S. Bancorp USB, -0.39%.
It reiterated neutral ratings on Citigroup Inc. C, +1.44%, Fifth Third Bancorp FITB, +0.81%, Truist Financial Corp. TFC, +1.31% and Wells Fargo & Co. WFC, +1.93%.
JPMorgan Chase, Wells Fargo & Co. and Citigroup are due to kick off first-quarter earnings reports from the big banks on Friday.
While regional banks appear to be stabilizing, investors continue to weigh challenges to the bigger banks on loan growth as it becomes more expensive to issue debt. Other uncertainties include a slowdown in consumer spending, impacts on credit creation and the expectation for higher regulatory requirements, not to mention persistent geopolitical risks.
“Near term, given the very negative tone, there could be modest recovery in bank stocks but medium term we expect bank stocks to remain choppy and pressured due to the concerns outlined above,” JPMorgan analyst Vivek Juneja said in a research note.
Bank stocks are now trading below long-term averages based on price-to-earnings ratios and price-to-total book value, when excluding other comprehensive income.
Overall, JPMorgan expects a 2% decline from the previous quarter in net interest income and slower loan growth with stronger-than-expected trading revenue offset by weak investment-banking revenue.
Credit cards remain a bright spot for banks, with double-digit growth at large banks. Mortgage banking revenue is expected to rebound somewhat in the quarter as mortgage applications ticked up.
Overall credit quality is expected to remain solid, with some buildups in reserves by big banks expected, JPMorgan analysts said.
The KBW Nasdaq Bank Index BKX, +0.82% is down 19.5% in 2023, compared with a 14.4% rise by the Nasdaq COMP, -0.03% and a 6.4% increase by the S&P 500 SPX, +0.10%. The Financial Select Sector SPDR exchange-traded fund XLF, +0.22% is down 6.6% in 2023 and the SPDR S&P Regional Banking ETF KRE, +0.52% is also down 26.8% so far this year.
Also read: JPMorgan upgrades Northern Trust to neutral from underweight as trust banks hold up better than regional banks