The major banks Wells Fargo (WFC) - Get Wells Fargo & Company Report, PNC Financial Services (PNC) - Get PNC Financial Services Group, Inc. Report and KeyCorp (KEY) - Get KeyCorp (KEY) Report on Monday were downgraded by UBS analyst Saul Martinez, as the coronavirus pandemic and resulting economic weakness wreak havoc on the banking sector.
Martinez cut Wells Fargo and PNC to sell and KeyCorp to neutral.
The banks will suffer losses on their commercial and industrial loans, he noted in a report cited by Bloomberg.
The analyst slashed his earnings-per-share projections for large-cap banks by an average of 25% for 2020, excluding Paycheck Protection Program lending, and by 18% for 2021.
To be sure, bank stocks’ rebound from their March lows points to “some optimism about a return to normalized profitability in 2021/2022,” Martinez wrote. The KBW Nasdaq Bank Index has surged 23% from its March 23 nadir.
Wells Fargo, San Francisco, suffers from “limited profitability buffers and constraints on tackling costs,” he said. Meanwhile, PNC of Pittsburgh and KeyCorp of Cleveland have high exposure to credit deterioration for commercial and industrial loans, he said.
On the brighter side, Martinez lifted his rating for Citizens Financial Group (CFG) - Get Citizens Financial Group, Inc. Report to buy because of its “more diversified loan book, self-help opportunities, and considerable valuation discount.”
Also on the positive side, Wedbush analyst Peter Winter wrote that bank stocks are unlikely to fall back to their March lows, Bloomberg reports.
That’s because the economy is beginning to reopen, government aid is starting to take effect, and banks are well-capitalized, he said.
Wells Fargo recently traded at $26.98, down 2.2%; PNC at $99.79, down 3.1%; and KeyCorp at $10.50, down 5.2%. Citizens Financial slid 2.9% to $20.80.