In downgrading JPMorgan to market perform on Monday, Keefe Bruyette & Woods analyst Chris Mutascio wrote that KBW still prefers JPMorgan shares to those of other giant U.S. banks including Bank of America (BAC) and Wells Fargo (WFC) . Still, KBW analysts believe investors are too optimistic about the potential for eventual interest rate hikes by the Federal Reserve to increase bank profits.
JPMorgan also has outperformed both the S&P 500 and the KBW Bank Index over the past six months, something Mutascio sees as unlikely to continue.
Higher capital requirements are another potential concern for JPMorgan, according to Bernstein analyst John McDonald, as are a diminished ability to benefit from so-called reserve releases -- the practice of boosting earnings by lowering the capital cushion JPMorgan created to cover potential loan losses.
McDonald dropped JPMorgan's rating to "market perform" on Wednesday, noting the bank's shares are right in line with their average price-to-earnings ratio over the past 20 years. Still, McDonald acknowledged JPMorgan "has the best collection of businesses among the universal banks."
The news wasn't all bad for JPMorgan shareholders this week. They also benefitted from an upgrade to "buy" on Tuesday, courtesy of Daiwa Securities analyst Kazuki Watanabe.
In an email to TheStreet, Watanabe took the opposite view of KBW's Mutascio, arguing the prospect of higher interest rates and expanding margins on loans will boost valuations for JPMorgan and several other banks as well. Daiwa also upgraded Citigroup (C) and Bank of America for similar reasons. Watanabe added that "negative catalysts" such as regulatory and litigation risks are already priced into the stock.
Despite the downgrades, JPMorgan remains the top-ranked bank stock by analysts among the largest 10 U.S. banks by assets, according to data compiled by Bloomberg.
JPMorgan shares were lower by 1.47% to $60.47 at mid-morning Wednesday.