Analysts at JP Morgan Chase & Co (NYSE: JPM) have suggested that their investors should consider investing in Wells Fargo & Co, based on a prediction that Wells Fargo will perform better than its competitors as the Federal Government ends support for certain types of deposits.
JP Morgan analysts said that investors should use a “call spread” strategy to invest in Wells Fargo.
“This could pressure earnings as weaker banks raise deposit rates and therefore pressure net interest margins,” the strategists at JPMorgan wrote. “Banks that would be especially vulnerable are those that have relatively high loan to deposit ratios and those that have seen strong growth in demand deposits over the past year.”
The general belief is that the Federal Deposit Insurance Corporation (NYSE: WFC) will soon decrease its backing of non-interest bearing accounts at banks. The strategists at JP Morgan believe that the move by the FDIC would put the company in a superior position, generating the call to use the spread to benefit from it.
Wells Fargo has emerged relatively strong from the financial crisis, avoiding much of the calamity that other banks faced in interacting with the Federal Government. Wells Fargo was also recently ranked as having the best customer service among large-cap banks.
