Bank stocks 'seem likely to set new lows' - Deutsche Bank

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By Sam Boughedda 

Deutsche Bank analysts downgraded shares of Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), and Truist Financial Corp. (NYSE:TFC) to Hold from Buy in a note Friday, stating that bank stocks "seem likely to set new lows."

The analysts also cut Bank of America's price target to $36 from $45, Truist's to $48 from $61, and JPMorgan's to $145 from $155.

"Bank stocks have rallied 10% off the Oct 12 bottom, making the third such bear market rally since bank stocks entered a bear market (i.e., declining 20% from the highs by April 14). With the current rally, the BKX is now down 30% since the peak--suggesting stocks are pricing in a 65-70% likelihood of a moderate or worse recession," the analysts said in their note.

While they acknowledged that it is tempting to get more positive, given stocks are already down sharply, inflation seems to be slowing and Fed rate hikes may be coming to an end, they explained that the firm's gut feeling "is that stocks will set new lows and fully (or close to it) price in a US recession suggesting there's more risk from here."

Deutsche Bank's 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."

"In this macro backdrop, we also worry investment banking fees will remain sluggish in this backdrop and trading will normalize more than expected," the analysts concluded.