HSBC Global Research analyst Saul Martinez revised ratings on several banks on incrementally positive stance on super regionals banks.
The analyst expects the banks in their coverage to show improved net interest income (NII), generate healthy recovery in adjusted EPS growth and operating leverage in 2025, and boost share buybacks in 2025 and beyond.
Notably, the analyst estimates a recovery in NII in H2 2024 and 2025 for most banks as deposit cost pressures ease and fixed-rate assets re-price at higher yields.
For the first-quarter earnings season, the analyst says that the focus will be on the banks' outlooks for NII, credit losses and loan loss reserve levels, efficiency improvements, and capital returns.
However, Martinez's forecasts include higher loan loss reserve builds in 2024 and a longer-than-previously anticipated recovery in investment banking fees.
Excluding Citigroup Inc. (NYSE: C), the analyst forecasts average adjusted EPS to grow around 13% in 2025 for the banks in their coverage vs a decline of 7% in 2024.
The analyst upgraded the U.S. Bancorp (NYSE: USB) to Buy from Hold and raised the price target to $53 from $47.
The analyst writes that the bank is their preferred choice among US super-regionals and expects it to expand profitability in 2025 and continue to generate near best-in-class ROTCEs.
Meanwhile, the analyst upgraded The PNC Financial Services Group, Inc. (NYSE: PNC) to Hold and raised the price target to $155 (from $141).
Martinez expects PNC's NII growth to re-emerge in the second half of FY24 and sees a clearer path to repurchase shares more quickly than anticipated.
The analyst sees PNC's strong market position with the middle market and corporate clients, disciplined approach to credit quality, and consistent solid returns on equity as positives.
On the other hand, the analyst downgraded Bank of America Corporation (NYSE: BAC) to Hold but lifted the price target to $39 (from $38).
Martinez writes that the market concerns that Bank of America would need to play catch up and raise deposit costs (thereby impacting earnings power) have not played out. Still, they note a slight decline in 2024 and 2025 EPS estimates since September 2023.