Jefferies downgrades JPMorgan as part of banking ratings reshuffle

“JPM’s initiatives to [invest] meaningfully in its future should pay off over a few years’ time, but will weigh on earnings growth and return on average tangible common shareholder equity (ROTCE) for 2022 and 2023,” capital analyst Ken Usdin said in a note to clients.

Analysts expect JPMorgan to provide more clarity on the potential return these investments will generate, but they see limited upside at the current time.

While the bank remains “well-positioned” for higher interest rates, its fee income from equity and bond trading “will work against the grain,” Usdin said. The megabank’s capital return prospects also face challenges from regulatory requirements such as supplementary leverage ratio constraints.

To be sure, Jefferies sees a potential upside surprise from JPMorgan if its fee degradation proves to be less severe than expected, particularly if its advisory fees offset softness in other business lines, Usdin said.

Shares of JPMorgan Chase are down 2.8% so far in 2022, compared with a 4.4% drop by the Dow Jones Industrial Average DJIA, +1.22% and a dip of 7.3% by the S&P 500 index. SPX, +1.58%

Goldman’s ROTCE boost; rating changes on UBS, Zion, CMA

With interest rate hikes likely to start in March by the U.S. Federal Reserve, Jefferies analysts also reshuffled ratings on three other bank stocks and reiterated a buy rating on Goldman Sachs Group Inc. GS, +1.03%

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Jefferies analyst Daniel Fannon lifted his ROTCE target by 1% for Goldman Sachs to greater than 15%, ahead of a strategic update from the bank scheduled for later this week.

“Underlying themes that will support higher returns include ongoing market share gains in both global markets and investment banking, contribution from pending acquisitions, increased loan/deposit activity, and higher interest rates,” Fannon said.

Shares of Goldman Sachs are down 5.1% so far in 2022.

Jefferies also downgraded US Bancorp USB, +1.28% to hold from buy and reduced its price target on the stock to $64 from $66 a share. USB shares are up 4.2% so far this year.

Jefferies upgraded Zion Bancorp ZION, +2.69% to buy from hold and lifted its price target to $87 from $70. Zion Bancorp shares are up 15.9% this year.

Comerica CMA, +2.32% was also upgraded to buy from hold, with a price target boost to $114 from $98 a share. Comerica shares are up 13.3% year-to-date.