In the wake of last week’s bank collapse — the collapse of Silicon Valley Bank, and the related collapses of crypto-focused Silvergate and Signature Banks — there has been talk about fractional reserves and liquidity coverage ratios (LCRs). And rightly so, because at the bottom, these banks collapsed due to a lack of liquid assets. In a way, these banks did not have enough liquidity to cover the severe money outflow.
The affected banks, particularly SVB, were hit by a run – that is, depositors were called upon to withdraw cash assets – and they lacked the liquid resources to meet that demand. Best practices in the banking industry would require an institution to have a liquidity coverage ratio sufficient to cover all accounts; i.e. high quality liquid assets suitable for meeting cash demands for 30 days. Without such coverage, the bank could not meet demand from depositors, and would rapidly become insolvent.
Against this backdrop, JP Morgan analyst Vivek Juneja highlights two big names that have enough liquidity to meet fast cash demand.
Noting that each has the potential to generate double-digit returns for investors, the 5-Star analyst rates them both as ‘Buys’.
US Bancorp ,USB,
We’ll start with US Bancorp, the parent company of US Bank. This Minneapolis-based bank holding company is the nation’s 5th largest banking institution, with $674.8 billion in total assets, more than 3,100 brick-and-mortar banking branches, and more than 4,800 ATM machines. The bank operates primarily in the US west and midwest, and is considered a ‘systemically important’ banking institution by federal regulators.
In the most important metric, for now, JPMorgan’s Juneja notes that US Bancorp has a liquidity coverage ratio of 122%. For depositors, this means that the bank has about 1/4 more cash than is needed to meet 30 days’ demand; From an investors’ point of view, this means that the bank has a degree of insulation in the event of a crisis.
However, like most bank stock On Wall Street, USB shares are down 20% over the past three trading days. For Juneja, what may seem like the kind of decline could be a buying opportunity.
“Earnings from large non-interest bearing deposits from UB and cost synergies should benefit in 2023. However, management also expects non-interest income to increase significantly in 2023 … We rate US Bancorp Overweight relative to peers because it should benefit more than peers from continued strong consumer spending, leading to card There should be an increase in the related fees. US Bancorp has a higher share of revenue from card-related fees,” Juneja said.
Looking ahead from this stance, Juneja added a price target of $52.50 to go along with his Overweight (i.e. Buy) rating on the shares, which includes 44% one-year upside potential. (To see Juneja’s track record, Click here,
In total, there are 17 analyst reviews on file for USB, which break down to 7 Buys and 10 Holds and give the stock a Medium Buy analyst consensus rating. The stock is selling for $36.54 and has an average price target of $54.78, which suggests an upside of ~50% over a one-year horizon. (Look USB Stock Forecast,
Bank of America Corporation (BAC,
The second stock we’ll look at is Bank of America. It is one of the leading names in the world’s banking industry; Its market cap of $228 billion and total assets of $3.05 trillion place it among the top 10 largest banks globally, and make it the second largest bank in the US (JP Morgan-Chase is larger). Bank of America holds about 10% of all US bank deposits.
JPM’s analysis of the bank’s current situation shows it with an LCR of 120%, a solid figure that holds good for a bank in a crisis situation.
Overall, JPM’s Juneja is taking an optimistic view of this stock, noting: “We continue to overweight Bank of America relative to our universe, reflecting benefits from its strong retail franchise, long and greater sensitivity to shorter-term rates, and relatively lower credit risk.
Juneja has an Overweight (i.e. Buy) rating on BAC shares with a $38.50 price target, suggesting 12-month upside potential for the stock of 35%. (To see Juneja’s track record, Click here,
In all, this major bank has recently attracted the attention of 15 Wall Street analysts and their reviews break down to 6 Buy, 7 Hold, and 2 Sell — for a Medium Buy consensus rating. BAC shares are selling for $28.51 and their average price target stands at $39.68, indicating the potential for 39% gains over the course of the year. (Look bac stock forecast,
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disclaimer: The views expressed in this article are those of select analysts only. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.