Which Bank Stocks Are in the Most Trouble?
Editor's Note: This article was originally published on Real Money at 10:45 a.m. on July 13.
Shares of JPMorgan Chase (JPM) - Get Report have so far proven to be the best performer among the Big Four U.S. banks in 2016. But a reversal of fortune could be on the horizon for the New York-based financial giant, at least according to analysts with Berenberg Capital Markets.
Citing continuing regulatory costs and the impact of cheap credit -- thanks to the Federal Reserve's ongoing zero interest rate policy and recurring bouts of quantitative easing -- the analysts said U.S. banks are "surrounded in a sea of debt," and profitability is becoming increasingly challenging to find.
But no bank appears to be in quite as precarious a position as JPMorgan, whose shares are down 5% on the year, the analysts led by James Chappell and Jonathan Sharpe said Tuesday in a postmarket report, entitled "U.S. Banks: Marooned."
Berenberg initiated coverage Tuesday on JPM with a sell rating and $52 price target, which is 15% below Wednesday morning trading, saying the banking giant led by Jamie Dimon trades at an "unwarranted premium to peers." The analysts highlighted that JPMorgan, in last month's Dodd Frank Act stress tests, had also posted higher loan losses relative to peers in the Big Four, with the exception of Citigroup (C) - Get Report .
Berenberg also began coverage Tuesday on Citigroup, with a buy rating and $50 price target, along with fellow Big Four members Bank of America (BAC) - Get Report and Wells Fargo (WFC) - Get Report , which were launched with buy and hold ratings, respectively.
Wells Fargo and Citi stock are held in Jim Cramer's Action Alerts PLUS charitable trust.
"We struggle to understand why JPMorgan trades at a premium to peers when historical and forecast losses imply it underperforms them," Chappell and Sharpe said in the report. "We can only attribute this to the belief investors have in the CEO, Jamie Dimon, which makes him worth nearly $46 billion to JPMorgan."
So far in 2016, JPMorgan shares have fallen roughly 5%, the best performance of its commercial peers, as Bank of America shares are down 20%, followed by 16% and 12% losses at Citigroup and Wells Fargo, respectively.
Meanwhile, Berenberg justified its bull position on Bank of America and Citigroup by citing strong stress-test results at Bank of America and substantial deferred tax assets that are just beginning to be employed at Citigroup. The analysts project Citigroup to now be able to offer a roughly 10% annual net capital return.
Wells Fargo could also be in for good news, as it is set to report earnings before the opening bell Friday, especially as healthy jobs numbers this month could point to stronger commercial banking activity, Real Money's Jim Cramer said in a recent report.
"But the banks are down enough that I suspect at this point with this employment number some may be able to tell a positive story and buy back more than announced -- think Wells Fargo ... and all will be OK with the world," Cramer said.