) --Analysts at Stifel Nicolaus have cut their estimates for large-cap banks to reflect a "new normal" of low interest rates, following the

Federal Reserve's

pledge to keep short-term interest rates near zero till mid-2013.

The Fed's signal has led to a

series of downgrades by bank analysts who had factored in an earlier rate hike by the central bank in their estimates.

Analysts at

Goldman Sachs

(GS) - Get Report


Morgan Stanley

(MS) - Get Report

have also recently reduced their price targets and forward estimates on banks.

"We are lowering our normalized EPS estimates to account for a prolonged period of low interest rates and its impact on net interest margins," Stifel analysts led by Christopher Mutascio said in their report.

"We realize that normalized EPS estimates are supposed to account for a "normal" interest rate environment as well as a "normal" credit quality environment. But, maybe the currently low rate environment is the new normal. It is time to adjust for that likelihood rather than assuming it will change anytime soon."

Bank of America

(BAC) - Get Report



(CMA) - Get Report



(STI) - Get Report

saw their 2012 estimates were reduced the most at about 9% to 10%.

JPMorgan Chase

(JPM) - Get Report



(USB) - Get Report


PNC Financial Services

(PNC) - Get Report


Wells Fargo

(WFC) - Get Report

saw more modest cuts at around 2% to 4%.

The new earnings estimates assume net interest margins will not move higher but stay flat. It also assumes some modest loan growth. Further contraction of interest rate or slower-than-expected loan growth pose risks to their estimates, the analysts said.

Stifel also cut its price targets on PNC Financial to $74 from $82, on US Bancorp to $32 from $34 and on Wells Fargo to $40 from $42, but remained bullish on the banks. "With these three companies consistently generating the highest ROAs and tangible book value per share growth within our large cap bank coverage, we believe they deserve to trade at premiums to the group," the report said.

More analysts are expected to lower their estimates and earnings, which may not be an entirely bad thing, according to the report. "The more the analyst community capitulates the faster we get to the bottom of the negative EPS revisions for the sector," they wrote.

--Written by Shanthi Bharatwaj in New York

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