By Sam Boughedda
In a note previewing first-quarter earnings for mid-cap banks, Morgan Stanley analysts told investors that while uncertainty is high, it is clear that "Street estimates need to move down meaningfully."
The analysts explained that near-term price action is hard to call and that there is no good real-time data on deposit trends for individual banks.
"Certain regional banks could rally if deposit outflows are not as bad as feared. But we recommend fading any rally - the medium-term outlook is tough for every driver of Midcap bank returns - cost of funds, loan growth, fees, expenses, provisions, and capital," the analysts wrote. "We are cutting 2023/24 estimates 17%/27% on average for the group, well below current street lows."
Morgan Stanley expects Midcap banks to face a meaningful rise in funding costs following the failures of SVB Financial Group and Signature Bank.
Elsewhere on Wednesday, Wells Fargo analysts, in their Q1 preview, said Western Alliance Bancorporation (NYSE:WAL) has the best risk/reward, but the near-term focus is on deposit stability.
"We are using WAL as a tactical call for 1Q23, as recent updates show that the liquidity stress has largely passed, and the bank is slowly returning to business as usual," said the analysts. "We expect investor focus to be heightened on net deposit growth in the coming quarter. The fallout from SIVB/SBNY seems to be contained within west coast banks, and those specifically with tech exposure and higher balances of uninsured deposits."