Bernstein analysts have maintained their EPS estimates for Bank of America Corp (NYSE:BAC) and U.S. Bancorp (NYSE:USB) while lowering their 2014 EPS estimates for PNC Financial Services Group Inc (NYSE:PNC) as softer NII and expenses outweigh PNC’s improving credit.

However, in their report dated July 17, 2014 on “U.S. Large-Cap Banks,” John E. McDonald and his team at Bernstein Research retained their Market Perform rating on all the three U.S. large-cap banks.

 

Bank Of America BAC
Bank of America Corp BAC

Credit and capital market revenues boost Bank of America

Analyzing the recent results posted by Bank of America Corp (NYSE:BAC), the Bernstein analysts note that Bank of America’s core (ex-hedge loss) net interest income (NII) dropped $200 million quarter over quarter to $10.4 billion, compared to $10.6 billion last quarter. The analysts point out that Bank of America management anticipates that NII will creep higher from the 2Q level in 2H14, which will benefit from a higher day count.

The analysts maintained their 2H14 quarterly NII run rate in the $10.5 billion to $10.6 billion range. However, looking into 2015, by envisaging a more conservative outlook for growth and continued low rates, the analysts have reduced their modeled 2015 NII run rate to $10.9 billion per quarter.

Bernstein analysts note that Bank of America Corp (NYSE:BAC)’s trading revenue came in better than anticipated and outperformed rivals. Moreover, its Investment Bank and Wealth Management units both posted good performance on the back of the company benefiting from a few one-time items. The analysts anticipate the provision to creep up to ~$570 million in 3Q and to ~$875 million in 4Q, as reserve release moderates from 2Q levels. However, the analysts anticipate that the new level of forward provision will be lower than their previously modeled assumption and help offset a more conservative NII run rate in their model.

Thus, the Bernstein analysts have maintained their EPS estimates for Bank of America Corp (NYSE:BAC) as softer NII trajectory is offset by better credit and capital market revenues. The analysts assigned a Market Perform on Bank of America and retained their price target of $17. The following table captures the analysts’ estimate revision summary and outlook on Bank of America:

 

Trimmed estimates for PNC

The Bernstein analysts have lowered their 2014 EPS estimate for PNC Financial Services Group Inc (NYSE:PNC) by 9 cents to $7.10, reflecting a lower 2H14 starting point for NII and management’s outlook for higher expenses. The analysts note that PNC’s NII dropped on lower purchase accounting accretion (PAA) and core yields, though the fee income rose on seasonal improvement and some special items.

The analysts note that PNC Financial Services Group Inc (NYSE:PNC)’s expenses came up by 3% quarter over quarter on the back of higher personnel costs and a seasonal uptick in marketing. However, they point out that these factors more than offset the incremental benefits from the company’s “continuous improvement program.” Moreover, PNC’s credit costs came in below management’s guided range.

The Bernstein analysts have thus assigned a Market Perform on PNC Financial Services Group Inc (NYSE:PNC) with a reduced price target of $93. The following table sets forth the analysts’ estimates on PNC:

 

Maintained estimates for U.S. Bancorp

Thanks to U.S. Bancorp (NYSE:USB)’s 2Q results coming in a touch above expectations on strong loan growth, the Bernstein analysts have maintained their 2014 and 2015 EPS estimates on USB at $3.10 and $3.40. The analysts also commend USB’s acceleration of loan growth to 8% annualized, expansion of NII and seasonally higher fee revenues, accompanied by good core expense controls and stable credit.

The analysts assigned a Market Perform on U.S. Bancorp (NYSE:USB) and retained their target price of $43. The following table summarizes the analysts’ estimate revision summary and outlook over USB:

 

The following table captures the Bernstein analysts’ views on the three U.S. large-cap banks: