Wells Fargo, PNC Fall on Downgrades Ahead of 2Q Reports

NEW YORK ( TheStreet) -- Wells Fargo ( WFC) and PNC Financial Services Group ( PNC) were among U.S. banks that saw their shares move lower Wednesday following downgrades by Sandler O'Neill analyst Scott Siefers.

Citing high valuations relative to peers, Siefers lowered his recommendations on Wells Fargo, PNC, Horizon Bancorp ( HBNC) and Old National Bancorp ( ONB) to "hold" from "buy."

"Our concern is that, while the market is now acutely focused on the steepening curve and a slightly stronger macro recovery, at some point that concentration may shift toward the myriad headwinds still impacting the group. These include still weak loan growth, a marked slowdown in refi activity, ongoing regulatory scrutiny (which introduces both earnings and capital questions), and the likely waning benefit of credit leverage. Plus, while the steeper curve is certainly a plus, it is no panacea, and the real leverage will come from a higher short end, which could still be years away. In other words, while the group's strength has certainly been based in part on fundamentals, sentiment seems to be playing just as big a role," Siefers wrote.

Despite including it among the downgrades, Siefers argued Wells Fargo "in particular," will "put to work its massive horde of excess liquidity, which should help to support" net interest margins and net interest income. He also cited "solid," credit and capital positions, adding "the company remains in a position to grow its loan book at a multiple of the industry level."

Wells Fargo shares were down by 1.71% in late morning trading, compared to a drop of 2.58% for PNC, a 3.73% fall for Horizon and a downward move of 1.22% for Old National. The KBW Bank Index ( I:BKX) was down by 1.27%. Wells Fargo was underperforming peers such as Bank of America ( BAC), JPMorgan Chase ( JPM)and Citigroup ( C) despite its superior capital position in the face of new regulatory mandates.

-- Written by Dan Freed in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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