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, like 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 pre-market trading as yields touched new lows, with oil shock fears compounding concern about the spreading coronavirus. BofA sank 13%, Citigroup shed 11% and JPMorgan dropped 10%. Wells Fargo, which faces a series of congressional hearings this week, sank 10%.
The KBW Bank Index closed down 4.5% on Friday at the lowest since December 2018. The index is down 26% so far this year versus an 8% 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.