Deutsche anticipates banks to post weaker third-quarter revenues in several categories including loans, securities and mortgage production.

US Banks

In their recent ‘Bank Cheat Sheets’, Matt O’Connor, Robert Placet and David Ho of Deutsche Bank AG (NYSE:DB) (ETR:DBK) feel Net Interest Margins too are likely to remain under pressure  for several banks.

Increasing Interest Impacts Securities

Deutsche analysts observe large banks’ securities are down by 2.9 percent quarter-on-quarter un-annualized on average. The analysts point out that these declines reflect banks trimming their exposure to long dated assets, though many of the banks claim they are well-positioned to handle rising interest rates.

Matt O’Connor and team also note industry IB fees in July/August are down 15 percent from the same period a year ago. The analysts anticipate this would pull down the likely consensus estimates, unless IB activities are picked up in September meaningfully.

Buy-Rated Stocks

Deutsche analysts have categorized various banks into three broad categories viz.: market sensitives, large cap regionals and mid-cap regionals.

Under the market sensitives category, the analysts assigned a buy rating on Morgan Stanley (NYSE:MS) as they feel the bank is expected to benefit from wealth management momentum from higher rates and equity levels. Deutsche analysts also assigned buy rating on JPMorgan Chase & Co. (NYSE:JPM) as they feel the bank is set to derive benefit from improving expense leverage, besides being well positioned to gain from consumer recovery. The analysts also assigned buy rating on Citigroup Inc (NYSE:C) as the bank would gain from turnaround story accelerating given less drag from Holdings.

Deutsche analysts point out the market sensitives banks are trading at 8-9 times their 2015 estimates, while on tangible book basis, these banks trade at 1 times.

Large Cap Regional Banks

Deutsche analysts assigned buy rating on Fifth Third Bancorp (NASDAQ:FITB) as they feel the bank is attractively valued, with revenues flowing from diverse streams. The analysts also assigned buy rating on PNC Financial Services Group Inc (NYSE:PNC) as the regional bank has more credit and expense leverage as opposed to its peers.

Matt O’Connor and team also assigned buy rating on U.S. Bancorp (NYSE:USB), as they feel with the pickup in consumer / commercial spending, the bank is set to witness EPS growth of double the industry average from 2012 to 2015. The analysts observe the large cap regionals are trading at 11 times their 2015 earnings, while on a tangible book basis, these banks trade at 1.3 times.

Deutsche analysts also assigned buy ratings on five mid-cap regionals such as Signature Bank (NASDAQ:SBNY), First Republic Bank (NYSE:FRC), First Niagara Financial Group Inc. (NASDAQ:FNFG), Texas Capital Bancshares Inc (NASDAQ:TCBI) and Webster Financial Corporation (NYSE:WBS). The analysts notice the mid-cap regionals are broadly trading at 13 to 14 times their 2015 estimates, while they trade at 1.8 times on tangible book basis.

The following table depicts various ratings and the target price set by the Deutsche analysts.

Deutsche Bank Report