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Bank Cheat Sheet: How Much EPS Downside Is The Market Pricing In?

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Bank Cheat Sheet: How Much EPS Downside Is The Market Pricing In?

In a new report, Deutsche Bank analyst Matt O’Connor discussed what the recent selloff in bank stocks means in terms of market expectations for 2016 bank earnings. O’Connor believes significant earnings downside has already been priced into bank stocks.

Deutsche Bank’s analysis indicates that the market is now expecting 10 percent downside to big U.S. bank earnings this year. O’Connor noted that, if macroeconomic conditions improve in the short-term, the bank selloff may prove to be an overzealous knee-jerk reaction. However, if the economy continues to deteriorate, he sees plenty more room to the downside for bank earnings.

Related Link: 'Credit Default Swap' Data Indicate Increasing Short-Term Market Risk

“We est [estimate] a modest C&I cycle could hit EPS by 10 percent and a haircutting of trading, ibanking and wealth/asset mgmt. would reduce mkt sens banks by another 7-10 percent,” O’Connor explained. He added that lower-than-expected net interest income represents up to 5.0 percent additional earnings downside.

O’Connor said Deutsche Bank sees real risk of a U.S. recession, but anticipates any recession would likely be a mild one.

A Few Names

Deutsche Bank maintains Buy ratings on the following market-sensitive and large regional banks:

  • Bank of America Corp (NYSE: BAC)
  • JPMorgan Chase & Co. (NYSE: JPM)
  • Citizens Financial Group Inc (NYSE: CFG)
  • M&T Bank Corporation (NYSE: MTB)
  • PNC Financial Services Group Inc (NYSE: PNC)
  • SunTrust Banks, Inc. (NYSE: STI)
  • U.S. Bancorp (NYSE: USB)
  • Wells Fargo & Co (NYSE: WFC)

Disclosure: The author owns shares of Bank of America.

Image Credit: Public Domain

Latest Ratings for BAC

DateFirmActionFromTo
Apr 2021Deutsche BankMaintainsBuy
Mar 2021Morgan StanleyMaintainsUnderweight
Jan 2021Atlantic EquitiesUpgradesNeutralOverweight

View More Analyst Ratings for BAC
View the Latest Analyst Ratings

 

Related Articles (BAC + CFG)

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