Odeon Capital analyst Richard Bove on Thursday downgraded JPMorgan Chase & Co.’s stock to neutral from buy even though he still thinks it’s the “best bank in America.”
While JPMorgan Chase
JPM,
should be a core holding in a bank portfolio, “there are simply too many near-term negatives to suggest that the bank’s stock will be a strong performer in the coming year,” Bove said.
Bove cited the so-called Basel III endgame proposals now under review by regulators as a damper on growth. The measures, which trace their roots to the global financial crisis, will “almost force the banks out of many core lending activities” and create operational problems, Bove said.
“The rules will change bank profitability if they are put into effect,” Bove said. “Since JPMorgan is the biggest bank in the country and the leader in multiple banking sectors, it is likely to be hurt more than other banking enterprises.”
While JPMorgan has benefited from rising rates because it can charge more for loans, lower interest rates could cost the bank up to $3 billion out of its $80 billion net interest income level because deposit costs will not drop in line with rates, he said.
The bank’s charge-off rate — the percentage of money it doesn’t expect to get paid back on credit cards or other loans — stands at 46 basis points, higher than industry averages, he said.
As these rates climb to normal historical rates, they will also hurt earnings, he said.
Another headwind is a lack of Wall Street dealmaking, which will hurt earnings, along with higher expenses, he said.
In his downgrade to neutral, Bove is taking a somewhat contrarian stance to the average analyst rating of overweight for JPMorgan Chase, according to FactSet data.
Bove’s target price for JPMorgan Chase is $140 a share, while the average target price for analysts for the bank is $171.83.
JPMorgan Chase’s stock was up 0.4% on Thursday, and has risen 5.5% so far in 2023. The stock is one of 30 stocks in the Dow Jones Industrial Average
DJIA,
which is up 1.9% this year.
Also read: Bank stocks outpace broad market into the red as higher bond yields impact the value of their portfolios
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