Analysts at J.P. Morgan (NYSE:JPM) are still pessimistic about small and mid-cap banks because of the negative risk factors for net interest margins and credit quality. These are two of the most important “needle movers” for the profitability of regional banks. But they raised First Hawaiian Bank (NASDAQ:FHB) because they think its results are less likely to change.
The analysts, under the direction of Steven Alexopoulos, upgraded First Hawaiian Bank to Neutral while downgrading KeyCorp (NYSE:KEY), Huntington Bancshares (NASDAQ:HBAN), and Live Oak Bancshares (NASDAQ:LOB) to underweight. Tuesday’s late morning trading saw losses in KEY shares of 1.5%, HBAN shares of 2.5%, and LOB shares of 1.8%. FHB went up 1.3%.
In a note to clients, Alexopolous said, “We see a deposit beta playbook being used by management teams as being overly optimistic in terms of NIMs, and in terms of credit, given how strong the current environment is, we don’t think that provision assumption will move to more realistic levels until the industry starts working through an actual economic downturn.”
JPM Stock outlook
Analysts look for banks that have a steady flow of profits and a high rise in intrinsic value. First Republic Bank is their #1 choice, followed by Cullen/Frost Bankers.
When estimating 2023 EPS, SVB Financial and First Hawaiian are both seen as less risky. They believe Comerica and Pinnacle Financial Partners have a positive risk/reward ratio.
Live Oak and First Republic are both given a Sell rating by SA Quant, while Huntington, KeyCorp, First Hawaiian, and Cullen/Frost are both given Neutral ratings. Sheen Bay Research, a SA contributor and holder of a Neutral rating on FHB, notes that the profits estimate for next year has already been factored in.
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Author Jowi Kwasu