HomeMarket NewsWedbush Upgrades East West Bancorp, Downgrades NY Community Bancorp

Wedbush Upgrades East West Bancorp, Downgrades NY Community Bancorp

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Tero Vesalainen

Wedbush recently made changes to its ratings for regional banks. The firm has shifted its focus towards defensive names in anticipation of a potential mild recession in 2024. In light of this, analyst David Chiaverini downgraded New York Community Bancorp (NYSE:NYCB) and Comerica (NYSE:CMA), while upgrading East West Bancorp (NASDAQ:EWBC) and adding First Citizens BancShares (NASDAQ:FCNCA) to the firm’s Best Ideas List.

According to Chiaverini, First Citizens (FCNCA) possesses the favorable characteristics required in the current backdrop. He highlights the bank’s high capital ratios compared to its peers, strong tangible book value growth, anticipated EPS accretion resulting from its Silicon Valley Bank deal, and attractive valuation.

Looking ahead to 2024, Chiaverini believes that capital ratios and tangible book value will become increasingly significant to investors. This is due to the potential weakening of credit quality within the banking industry, the implementation of new capital rules, and the expiration of the AOCI opt-out for banks with assets over $100 billion.

As a result of East West Bancorp’s (EWBC) above-average capital levels, ability to organically accrete capital at a solid pace, and prospects for growth in tangible book value, Wedbush has upgraded the company’s rating from Neutral to Outperform. Chiaverini cites EWBC’s CET1 ratio of 13.3% as of Q3, which surpasses the mid-cap median of 11.4%.

In contrast, New York Community Bancorp (NYCB) has been downgraded from Outperform to Neutral and has been removed from Wedbush’s Best Ideas List. Chiaverini explains that NYCB has an β€œoutsized” exposure to commercial real estate, constituting 47% of its average earning assets. This poses a risk in a higher-for-longer rate environment.

Chiaverini also reduced Comerica’s (CMA) rating from Outperform to Neutral. He predicts below-average earnings growth in 2024, with a preprovision net revenue decline of 14% compared to the regional bank median decline of 1%. Additionally, CMA has the second-highest commercial real estate (CRE) exposure in the regional banking group, representing 23% of its earning assets as of September 30.

Comerica (CMA) has relatively low capital levels, with its CET1 ratio (adjusted for AOCI) at 5.2% compared to the peer median of 7.7%. Despite not being subject to the end of the AOCI opt-out on capital ratios, Wedbush is concerned that potential new rules may be applied to banks nearing $100 billion in assets, including CMA at $85 billion.

Finally, First Foundation (FFWM) has been downgraded from Outperform to Neutral. The company may face pressure on its net interest margin in Q4 due to rising funding costs. While its net interest margin increased by 15 basis points in Q3 after four consecutive quarters of decline, this improvement may be short-lived. FFWM also has above-average CRE exposure at 50% of earning assets.

Note that the SA Quant system does not have any Buy ratings on the mentioned stocks by Wedbush and assigns a Sell rating to First Foundation (FFWM). For a comprehensive analysis of the stocks’ key metrics, refer to SA’s peers tab.

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