Bank of America shares are positioned to move higher on a pickup in capital markets revenue, higher interest rates and an improiving U.S. economy.
So said Deutsche Bank in upgrading Bank of America (BAC) shares to Buy from Hold on Wednesday with an $18 price target. Shares are up 2% today to
Deutsche also upgraded market-sensitive banks with Goldman Sachs (GS) and JPMorgan Chase (JPM) as top picks. Deutsche analysts think fixed-income, commodity and currency (FICC) trading revenue looks to have hit bottom in May, with upside from here. They write:
“We sense some pick up within FICC in June given strong credit issuance, tighter spreads and a pickup in broker dealer inventory levels. From here, the second half of 2014 year-over-year comparisons are easier for FICC. M&A activity should also pick up materially based on what's been announced this quarter and M&A tends to lead to ancillary business, often boosting revenues by 2-4 times advisory fees. Separately, while legal/regulatory risks remain high, the group has absorbed a lot of bad news and it's possible November elections could prove to be a positive catalyst for banks.”
Specific to Bank of America: Deutsche thinks BofA will see a pickup in capital market revenue, and will benefit from higher interest rates. Big negatives are reflected in the stock, at 1.1 times tangible book value and 10 times 2015 earnings estimate, Deutsche writes.
Dutsche is sour on Wells Fargo (WFC) however. Its shares have ralled about 16% so far this year on solid results and an investor shift away from market sensitive banks with weak trading revenue and legal overhangs. The 17-point outperformance relative to Bank of America and JPMorgan is “a bit much,” Deutsche analysts write.
Shares of Goldman are flat, but JPMorgan stock is down 1% this afternoon following news that CEO Jamie Dimon was diagnosed with curable throat cancer.
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