NEW YORK (
) -- "Strap on your helmet and buckle up as it is likely to be a bumpy ride this summer" for bank stocks investors, according to Raymond James analyst Anthony Polini.
Raymond James late on Tuesday lowered earnings estimates "at the majority of 76 larger cap banks we collectively follow (excluding trust banks) primarily reflecting record low interest rates and a slower pace of loan growth." The firm also lowered its ratings for seven banks.
Polini said that "Friday's disappointing job report [with the U.S. unemployment rate increasing during April to 8.2% from 8.1%] sparked a meaningful sell-off in the sector, which had already been in sell off mode since the end of 1Q12 earnings season in early May," and that "going forward, we see low rates persisting at least for the nearer-term with the view that the economic data/sentiment sinks lower before improving."
Raymond James therefore expects the trend of declining net interest margins (NIM) for banks to continue, "well into 2013." Polini said that the "benefits of lowering funding costs and credit leverage to mitigate NIM headwinds" have largely played out," and that "lower NIMs will further compound pressure on top and bottom line profitability in the short to intermediate-term."
Polini also expects loan growth -- a very important theme for many regional banks over the past several quarters -- to be "pressured in the near term," as last week's weak economic reports have lead Raymond James to "believe loan growth will now generally prove slower than we had originally forecast for at least the next few quarters." Politics also comes into play as "uncertainty around tax issues, healthcare costs, and further unemployment are likely to constrain spending and investment among businesses and consumers alike without a clear leader in recent presidential polls."
Here's a quick look at the seven banks downgraded by Raymond James late on Tuesday: