JPMorgan, Bank of America Rally as Deutsche Bank Turns Bullish on Banks

(Bloomberg) -- Shares of JPMorgan Chase & Co. and Bank of America Corp. climbed early Thursday after Deutsche Bank upgraded both, saying bank stock performance is about to get better after lagging amid pandemic-induced revenue concerns due to low interest rates and weak loan growth, along with credit worries.

“At this point, a further meaningful lag seems unlikely and there’s an argument to be made that bank stocks should catch up a bit versus the broader market,” analyst Matt O’Connor wrote in a note. He raised both stocks to buy from hold, citing a more-than 40% gap so far this year between banks and the broader market.

His positive view on bank stocks also “reflects more confidence in a continued macro recovery,” O’Connor said. He added that there’s a “good chance” the bulk of banks’ loan loss reserve building is done, and noted capital markets and mortgage revenue are both strong, while fees from service charges, card income and investment and brokerage continue to rebound.

JPMorgan rose 3.3% in early trading, reaching the highest since mid-August; BofA climbed 3%. Citigroup Inc. and Wells Fargo & Co. also gained more than 3% at their morning highs. The KBW Bank Index has lost 30% so far this year, only a little better than the 32% slump in the KBW Regional Banking Index. By contrast, the S&P 500 has added almost 10%.

In a separate note, Citigroup analyst Keith Horowitz wrote that he came away from an investor call with BofA chief executive Brian Moynihan “more upbeat about the broader macro outlook with respect to BofA’s business model and credit quality outlook.”

Horowitz cited better-than-expected economic data and a recovery in consumer spending, along with a “high degree of comfort on adequacy of loan loss reserves.” Earlier this week, Visa Inc. reported August payment trends that analysts called promising. In August, Morgan Stanley said that banks’ reserves were probably near peaking as they’d been building at the fastest rate in modern banking history.

Even so, Horowitz warned that “the biggest question is whether there is ‘another shoe to drop’ and a worsening in the broader economy.”

Read more: Aug. 27, Bank Stocks Rise After Powell Shift Lifts Treasury Yield Curve

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