JPMorgan Chase & Co. analysts on Friday downgraded three regional bank stocks and said they’re moving their outlook for the sector to neutral based on rising expectations of a recession as well as more aggressive interest rate hikes from the U.S. Federal Reserve. JPMorgan cut its ratings on Live Oak Bancshares Inc. LOB, +1.25% and Huntington Bancshares Inc. HBAN, -1.04% to neutral from overweight and downgraded HBT Financial Inc. HBT, -2.41% to underweight from neutral. “On LOB, while our call on the stock has been to buy at the point of maximum pessimism, with the Fed now adopting a much more hawkish posture, we now believe this point remains on the road ahead rather than in the rear-view mirror,” JPMorgan analysts said. “For HBAN and HBT, despite both companies having peer-leading [customer loyalty], they have yet to translate this premium experience into stronger top- and bottom-line growth versus peers.” Analysts said they are neutral on regional banks, partly because bank stock valuations are already discounting a 50% probability of a recession and inflation could ease back. Analysts spotlighted First Republic Bank FRC, +0.89%, Signature Bank SBNY, +1.38%, SVB Financial Group SIVB, +0.21%, Silvergate Capital Corp. SI, -1.92% and Cullen/Frost Bankers Inc. CFR, -0.42% as their top picks in the sector. The KBW Bank Index BXK, -4.61% is down 23.6% in 2022, compared to a drop of 20.6% by the S&P 500 SPX, -0.35%.
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