Here’s what Wall St. experts are saying about these banks ahead of earnings

JPMorgan (JPM), Citigroup (C), Wells Fargo (WFC) and Bank of America (BAC) are scheduled to announce quarterly results on January 12. What to watch for:

RATING SHUFFLE: On Tuesday, Deutsche Bank upgraded JPMorgan to Buy from Hold with a price target of $190, up from $140. The firm sees three key themes for the U.S. banks in 2024, namely lower interest rates, which are good for bank capital, but generally bad for earnings; credit quality, which will likely be the most important theme for bank stocks whether or not there’s a credit cycle; and regulation and the political backdrop. JPMorgan shares should benefit from upside to net interest income guidance, good leverage to a pickup in capital markets revenues, and strong capital and loan loss reserve levels, Deutsche tells investors in a research note.

On the flip side, the firm downgraded Wells Fargo to Hold from Buy with an unchanged price target of $51. Deutsche expects a weak net interest income guide for 2024 given likely lower rates and continued sluggish loan growth. The stock’s valuation seems fair at current levels, the firm tells investors in a research note.

Baird also downgraded Wells Fargo to Neutral from Outperform this week with an unchanged price target of $55. The firm is curbing its enthusiasm on U.S. banks following the group’s significant outperformance and would “advocate patience and preference for regionals, but only on weakness.” For Wells Fargo, Baird finds the risk/reward of the stock to be fairly balanced now. The firm is also “mildly concerned” that deposit betas will remain high in 2024, and the bank’s ability to meaningfully lower deposit costs could be limited relative to the consensus view.

STREET DISAGREES ON CITI: HSBC upgraded Citi to Buy from Hold with a price target of $61, up from $42. The firm is incrementally positive on banks and still sees a capital markets recovery but is more selective on brokers. Citi’s return on equity expansion should enhance management credibility, triggering multiple expansion even as book values grow mid to high single digits, HSBC tells investors in a research note.

Meanwhile, BMO Capital downgraded Citi to Market Perform from Outperform with a $57 price target. Citi shares tend to underperform those of its money-center peers during periods of risk-off or negative sentiment among U.S. bank stock investors, which BMO forecasts will accompany the impending system-wide credit cycle from Q4 of 2023 to Q4 of 2025. The firm now regards Citi’s 2026 return on tangible common equity target range of 11% to 12% as a stretch goal.

TARGET RAISES: Last week, BofA raised its price target on JPMorgan to $188 from $177, while keeping a Buy rating on the shares. The bank’s relative size is often seen as an obstacle to achieving superior growth, but management has repeatedly proven itself as able to use its scale as a strategic advantage while staying nimble, says the firm, which views the shares as offering an attractive risk/reward to add exposure to U.S. banks despite two years of back-to-back outperformance.

HSBC also raised its price target on JPMorgan and Wells Fargo to $188 and $55 from $159 and 45, respectively, while keeping a Hold rating on both names. More bullish on Bank of America, the firm maintained its Buy rating on the name, raising its price target on the shares to $38 from $35. HSBC said it is incrementally positive on banks and still sees a capital markets recovery but is more selective on brokers.

OUTLOOK: During Citi’s last earnings conference call, the said it saw full year 2023 revenue of $78B-$79B, with consensus currently at 79.56B. The bank also said it expects 2023 net interest income, excluding Markets, to increase from about $46B-plus to $47.5B-plus; 2023 expenses to be $54B, with continued normalization of net credit losses in cards, and an effective tax rate of 25%; Branded Cards to normalize to 3.00%-3.25% and Retail Services to 5.00%-5.50% by year end. Citi also saw “modest” buybacks in Q4.

Wells Fargo also said during its own earnings conference call for the previous quarter, that it saw full year 2023 net interest income 16% higher than 2022’s, up from prior guidance of about 14% higher, with Q4 2023 expected to be $12.7B. 2023 noninterest expense excluding operating losses was expected to be $51.5B, up from prior guidance of $51B, with Q4 2023 expected to be about $12.6B.