Deutsche Bank downgrades Bank of America, JPMorgan Chase as fundamentals weaken

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Deutsche Bank is shifting its perspective on shares of Bank of America and JPMorgan Chase as macro uncertainties loom. Analyst Matt O’Connor downgraded shares of both banks to hold from buy in a note to clients Thursday, saying that the two stocks look poised for new lows as fundamentals weaken. “In some ways, it’s 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,” he said. “But our gut 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.” Looking ahead, O’Connor expects net interest rate margins to peak, loan growth to slow and credit costs to climb, viewing regional banks as more defensive given their lower exposure to credit card risks and global capital markets. “In this macro backdrop, we also worry investment banking fees will remain sluggish in this backdrop and trading will normalize more than expected,” he wrote. O’Connor also sees earnings for both companies as likely peaking, expecting downturn risks to pressure valuations. Shares of Bank of America and JPMorgan fell more than 25% and 15.3%, respectively, in 2022. The firm’s revised $36 and $145 price targets suggesting shares can gain about 6% and 7%, respectively. O’Connor, meanwhile, upgraded shares of PNC Financial Services to buy, saying that the company’s strong credit underwriting and cost control position is as one of the shares most defensive within the banking group. His revised $200 target implies more than 25% upside from Thursday’s close. — CNBC’s Michael Bloom contributed reporting