JP Morgan Chase (NYSE: JPM) analysts say that major banks are scaling back their lending activities and boosting their cash reserves to cover lingering credit losses. Meanwhile, the firm also cut ratings for several large-cap banks including Bank of America Corp. (BAC), Regions Financial Corp. (RF), Wells Fargo & Co. (WFC), SunTrust Banks Inc. (STI) and Fifth Third Bancorp (FITB) in a research note on Tuesday.
According to the report, JP Morgan analysts say that, “Key changes seen thus far in the fourth quarter for large banks are the slowdown in growth in securities and the large 28% quarter-over-quarter increase in cash, while loans continue to decline at a little faster rate led mainly by construction and industrial loans and also to some extent residential mortgages.” They added, “We expect this shift will hurt net interest income into 2010.”
They lowered their 2010 estimates for Bank of America to 80 cents per share down from 90 cents per share citing lower-than-expected interest income as a result of a smaller balance sheet and a more difficult interest rate environment. According to the note, “This should be partly offset by modestly better capital markets related fee income and lower than expected provision expense in 2010 related to credit cards.”
JP Morgan’s predictions for SunTrust Banks dropped to a loss of $1.05 per share, a significant decrease from its previous prediction of 50 cents per share. Fifth Third’s 2010 loss was raised by 20 cents per share to 50 cents per share.
The one bank that JP Morgan analysts raised their estimates on was U.S. Bancorp (USB), to better reflect the firm’s revenue and share gains in mortgage banking, as well as benefits from a series of small acquisitions that the bank had made in recent months. JP Morgan boosted its 2010 outlook for U.S. Bancorp by 5 cents to $1.45 per share.
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