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Higher rates have Keefe, Bruyette & Woods analysts optimistic about bank earnings, and the firm upgraded both Citigroup Inc (NYSE:C) and Wells Fargo & Co (NYSE:WFC) Wednesday.
KBW upgraded both banks from Market Perform to Outperform. Analysts Brian Kleinhanzl and Michael Brown raised their price target from $53 to $63 for Wells Fargo and from $56 to $69 for Citigroup.
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Federal data indicates bank loan growth may come in lower than projected at the beginning of 2017, Kleinhanzl and Brown said in a note. Net interest margins could exceed expectations, the analysts said.
'Clouds Of Uncertainty’ Part For Wells Fargo
Wells Fargo agreed last month to pay $110 million to settle lawsuits over millions of fake accounts opened without customer approval by bank employees in order to meet sales goals.
The fallout from the scandal includes a $100 million penalty issued by the Consumer Financial Protection Bureau, the largest in the agency’s history.
The KBW analysts are interpreting the settlements as a sign that the worst is behind Wells Fargo.
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“ … The clouds of uncertainty have parted from our view,” Kleinhanzl and Brown said.
The firm’s Outperform rating on Wells Fargo is based on Kleinhanzl and Brown’s view that the bank’s margin will grow more than expected, leading to upward guidance revisions.
The bank’s management could potentially benefit from adjusting its balance sheet to take advantage of rising interest rates, according to KBW.
“We believe Wells Fargo will see better growth within the retail bank as we get farther away from the scandal, and our price target reflects WFC returning to the recent premium versus peers,” the analysts said.
Citigroup Investors ‘Face Little Risk’
The KBW analysts had concerns Citigroup “was becoming a classic value trap” in the last year, but have come to believe the bank will see higher capital returns due to regulatory changes following the election of President Donald Trump, according to Wednesday’s note.
Citigroup’s emerging market exposure is “manageable” given the assumption of global reflation and a lack of short-term risks in emerging markets, Kleinhanzl and Brown said, adding that if global growth rises substantially, Citi’s revenues could see an upside that’s not fully reflected in estimates.
“At the current valuation, we believe investors face little risk while waiting for higher returns while still holding on to the optionality of deregulation or tax reform.”
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.