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Bank of America, JPMorgan Stocks Are Downgraded. Higher Rates Are a Mixed Blessing. -- Barrons.com

Barron's · 01/06/2023 12:32
By Angela Palumbo

Bank of America and JPMorgan Chase shares were downgraded Friday as Deutsche Bank weighed in on how a weaker economy could affect the lenders.

Analyst Matt O'Connor downgraded shares of both banks to Hold from Buy. He cut his stock-price target for Bank of America (ticker: BAC) to $36 from $45 and lowered his call on JPMorgan Chase to $145 from $155.

Both banks report their results for the fourth quarter on Jan. 13. Shares of Bank of America were 0.8% higher at $34.35 Friday while stock in JPMorgan gained 1.6% to $137.52.

"Our continued cautious view...reflects ongoing macro risks and likely weakening bank fundamentals--including peaking net interest margins/NIMs, a likely slow down in loan growth (especially in commercial and credit card), rising credit costs, continued cost pressures and limited excess capital to support buybacks," O-Connor wrote in a research note.

Net interest margin -- the difference between what banks pay on deposits and what they receive on long-term loans such as mortgages -- is expected to improve as the Federal Reserve continues to lift interest rates. But rising interest rates may be too much of a good thing. Some customers may stop borrowing, or borrow less, if rates rise too much. A recession triggered by higher rates could make it harder for borrowers to repay what they owe.

"Given bank earnings may be peaking, we see downside risk from reserve build and valuations should be below normal if there's a recession," O'Connor wrote. He believes bank stocks could hit new lows.

Write to Angela Palumbo at angela.palumbo@dowjones.com

(END) Dow Jones Newswires

January 06, 2023 12:32 ET (17:32 GMT)

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