Plummeting oil prices will crush bank stocks already facing weak lending, margin pressures, higher loan losses and product price deflation, according to Odeon Capital analyst Dick Bove.
“A sharp decline in oil prices will be a body blow to an industry already at high risk,” Bove said in a note. He advised investors avoid the group as all major banks, including Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co., are large lenders to companies with ties to the energy sector and now face a “big problem.”
He also flagged regional banks U.S. Bancorp, PNC Financial Services Group Inc., Comerica Inc., KeyCorp and Regions Financial Corp. Three Canadian banks, Royal Bank of Canada, Toronto-Dominion Bank and Bank of Montreal may also be at risk, he said.
Bank shares kept collapsing in early trading as Treasury yields touched new lows, with oil shock fears compounding concern about the spreading coronavirus.
The KBW Bank Index fell as much as 10.9%, the most since August 2011. BofA and Citigroup plunged more than 15%, also the most since 2011, while JPMorgan fell 13%, the most since 2015. Wells Fargo, which faces a series of congressional hearings this week, slid 11%; earlier Monday, Betsy Duke stepped down as Wells Fargo’s chair. Morgan Stanley shed 12% and Goldman Sachs Group Inc. tumbled 11%.
Including Monday’s moves, the bank index has fallen 34% so far this year versus a 14% decline for the S&P 500.
Separately, Bove expressed concern about JPMorgan Chief Executive Officer Jamie Dimon, who underwent heart surgery last week. “Jamie Dimon is not replaceable,” Bove wrote, and it now looks inevitable that he will ease away from a large number of his duties. “JPMorgan Chase will definitely be hurt by this,” he said.
Bove’s comments are at odds with other analysts like KBW, who said last week that the bank has a deep bench of potential replacements setting it up for a smooth transition.
— Check out As Stocks Plunge, El-Erian Sees Huge Tumble Coming on ThinkAdvisor.