JPMorgan, Other Hard-Hit Banks Start to Get Fresh Upgrades

(Bloomberg) -- Some analysts are starting to see value in the beaten-down banking sector, with JPMorgan Chase & Co., Regions Financial Corp. and Fifth Third Bancorp attracting upgrades early Monday. But that wasn't enough to stop the bleeding in share prices, as the KBW Bank Index extended recent losses in morning trading.

The index dropped for a seventh day, declining as much as 1.3%, while JPMorgan shed as much as 1%.

The index has sunk 20% so far this year, compared with an 8.1% decline in the S&P 500, as big banks have been hit particularly hard by concern the new coronavirus will dent the economy, which in turn has sent yields tumbling. Ten-year Treasury yields were down about 7 basis points to 1.075% on Monday.

Here are some of the latest bank analyst moves:

Piper Sandler raised JPMorgan to overweight from neutral (PT $149), with analyst Jeffery Harte writing that the bank is a “relative winner in any macro-environment.” Harte added that he wasn't calling a market bottom, but rather was highlighting a potential out-performer.

Baird's David George upgraded Regions Financial, Fifth Third, and First Horizon National Corp. to outperform, saying that the coronavirus probably won't permanently hurt bank earnings, even though it's clear “there will be some negative economic impact.” Regions rose as much as 1%, Fifth Third fell as much as 1.4% and First Horizon gained as much as 1.6%.

Prosperity Bancshares Inc. was also raised to outperform by Wedbush's Peter Winter (PT $74 from $75), who called it a “flight to quality bank” and said its Legacy Texas deal will probably be more accretive than originally thought. Shares rose as much as 0.8%.

Goldman Sachs analyst Richard Ramsden wrote that buy-rated Citigroup Inc. and Bank of America Corp., along with neutral-rated Morgan Stanley, “screen as having attractive valuations relative to downside returns.”

He also calculated that current bank valuations were “discounting a 25% probability of a mild recessionary scenario.” Adjusting for recent stock moves, three interest rates cuts by the end of 2020, an assumption of no loan growth this year, and modeling a 10% shock to capital markets revenue, results in a potential 11% reduction in 2021 earnings, he said.

Citigroup shares dipped as much as 0.2%, while BofA dropped 2.8%.

Read More: Feb. 28, Goldman Vulnerable in Worsening Virus Scenario, KBW Says (1)

To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott Schnipper

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