While a slowdown in refinancing activity is expected to cause a sharp decline in mortgage production revenue for nearly all U.S. banks, Keefe Bruyette & Woods analyst Christopher Mutascio argues that Bank of America is in a good position to offset the negative trend.
"We believe BAC may have more levers to pull (lower expenses and greater reserve releases) to offset weak trends in fee income (mortgage and trading) than most banks heading into 3Q13 earnings season," wrote Mutascio in a report published Oct. 2
Wells Fargo analyst Matt Burnell urged investors to take a "defensive posture," for the near-term. "Heading into earnings, we believe the banks with the lowest exposure to [fixed income currencies and commodities] trading revenue and highest exposure to noncapital markets revenue should fare best in a relatively challenged quarter." In addition to Bank of America, Burnell argues JPMorgan Chase (JPM - Get Report) and Morgan Stanley (MS - Get Report) are similarly-positioned.
Both Burnell and Mutascio are officially neutral on Bank of America. Mutascio and his colleagues at KBW argue JPMorgan is better long-term play, while Burnell has outperform ratings on JPMorgan and Citigroup (C - Get Report) among large diversified U.S. banks.
Written by Dan Freed in New York
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