4 Reasons BankUnited Was Downgraded To Sell By Goldman Sachs

Increased scrutiny by Commercial Real Estate [CRE] and the resultant increase in costs for risk management could slow growth at several banks, Goldman Sachs’ Ryan M. Nash mentioned in a report. He downgraded the rating for BankUnited BKU from Buy to Sell, while reducing the price target from $40 to $34, saying the bank was the most vulnerable.

Consensus Expectations Too High

Analyst Ryan Nash mentioned that while BankUnited continues to demonstrate robust growth, the consensus expectations for 2016 and 2017 appear aggressive. He outlined the various reasons for the company falling short of expectations:

• A significant portion [44 percent] of the company’s earnings are still dependent on accretion which “continues to run off.”
• Consensus expectations for EPS growing from $0.67 in 2015 to $1.33 in 2016 and $2.16 in 2017 are too aggressive.
• Continued regulatory spend and higher headcount will result in higher expenses.
• Potential for additional capital raises due to CRE concerns.

“Our downgrade rests on our view that estimates are too high and scrutiny of commercial real estate lending could cause BKU to raise capital, curtail growth, or spend on regulatory and compliance infrastructure,” Nash wrote.

The EPS estimates for 2016, 2017 and 2018 have been reduced from $2.13 to $2.07, from $2.45 to $2.40 and from $3.09 to$2.90, respectively, to reflect quarterly trends.