BofA, JPMorgan Exposed to New Covid Spikes, Morgan Stanley Warns

(Bloomberg) -- Spiking Covid-19 cases in Florida, Texas, California, Arizona and Georgia may mean “significant stress” for businesses operating there, especially if governors halt reopening plans, according to Morgan Stanley. That may in turn pressure credit quality, analysts led by Ken Zerbe and Betsy Graseck wrote in a note.

Zerbe and Graseck highlighted banks with the greatest dollar exposure in the “epicenter” of the pandemic. They include the biggest lenders: Bank of America Corp., with $618 billion in deposits across those five states, as per 2019 data; Wells Fargo & Co., with $467 billion; JPMorgan Chase & Co., with $420 billion, and Truist Financial Corp., with $140 billion.

Non-U.S. based institutions like Mitsubishi UFJ Financial Group, BNP Paribas SA and Banco Bilbao Vizcaya Argentaria SA are also exposed, he said.

The analysts flagged other exposed banks, including California-weighted First Republic Bank, CIT Group, East West Bancorp, Synovus Financial and SVB Financial Group, though the data for the Silicon Valley lender may be “misleading,” given its unique customer base and lack of traditional branch structure, Zerbe and Graseck said.

Forty-two banks have at least 50% of total deposits located in those states. That includes Cullen/Frost Bankers Inc. and SVB, which have 100% of deposits in those markets, and Prosperity Bancshares Inc., East West, CIT, Synovus, Cadence BanCorp., First Republic Bank, BankUnited Inc. and Zions Bancorp, they said.

Separately, Morgan Stanley biotech analysts led by Matthew Harrison wrote that the trend and scope of new virus cases was worsening in the U.S. “Data from this week will be critical in determining the trend for Arizona and California,” they wrote, cautioning that “if Texas and Florida do not break their exponential growth in the next 10 days we would expect the outbreak to become uncontrollable without more aggressive measures.”

Earlier, deaths from the virus surpassed 500,000 worldwide, confirmed cases exceeded 10 million, and the World Health Organization said that the worst is yet to come.

Bank stocks briefly rebounded on Monday after sinking on Friday. Before paring back gains, the KBW Bank Index rose as much as 2.8%, led by CIT, People’s United Financial, Comerica Inc. and First Horizon. JPMorgan trimmed a rally of as much as 2.1%; while Wells Fargo and BofA nearly erased gains of more than 2.2%.

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