UBS Comments On JP Morgan And Bank Of America

UBS analysts published a note on Thursday offering a potential pairs trading in the banking sector. JP Morgan JPM is noted as a bearish holding due to lack of momentum to improve multiples in the current environment. Bank of America BAC is a bullish holding thanks to a positive deposit profile that is expected to benefit from rising rates.

Speaking to JP Morgan, UBS highlights “given the secular pressures on the business plus the nearly insatiable appetite for fines by regulators, we would rather not be reliant on the environment improving”.

Increasing capital requirements have the potential to increase downside risks as wholesale funding and other money centers “could expose them to a more significant capital buffer as recently proposed by Fed Gov. Tarullo”.

With a larger portion of returns being handed over to shareholders UBS believes there is a potential for negative surprises on the capital return front for JP Morgan. UBS maintains a $64 price target and rates the shares at Neutral.

Addressing the positives in Bank of America, UBS cites the BOA’s “more stable and sticky funding base enhances its leverage to rising rates, particularly to a move in the short end of the curve”. The Bank is expected to be able to buffer a need to pass on rate increases to depositors which may result in higher long-term earnings power.

UBS has a $20 price target on BAC with a Buy rating.

As of the noon hour, JP Morgan traded down over 1 percent to $58.75. Bank of America traded down roughly 0.80 percent to $16.68