Evercore ISI said some well-known regional banks will benefit from the Federal Reserve’s upcoming interest rate cuts. Federal Reserve Chairman Jerome Powell said on Friday that the central bank is ready to cut interest rates in the future, but he declined to specify the timing or extent of the rate cuts. As investors await action from the Fed, Evercore ISI used its latest asset/liability committee scenario and several banks’ net interest income commentary to find out which banks would fare best in a lower interest rate environment. “As the Fed pivots through balance sheet restructuring, securities restructuring and hedging efforts, banks’ asset sensitivities gradually decrease,” analyst John Pancari said in a recent note to clients. It added that measures taken by these banks include reinvesting cash in securities to lock in higher interest rates, repaying more costly debt and allowing more costly certificates of deposit to mature. Pancalli said banks like Comerica, Truist Financial, U.S. Bancorp and Fifth Third Bancorp are in the best position from a net interest income (NII) perspective as the Fed begins cutting interest rates. The analysts added that these companies have outperformed the sector by the largest margin over the past month as they are the least asset-sensitive and the most liability-sensitive, saying their NII sensitivities have so far outweighed credit concerns or market-driven fee-revenue sensitivity. According to the report, Comerica, US Bancorp and Fifth Third each forecast two interest rate cuts this year. Comerica shares are up 3% this year and 12.6% this quarter. However, following the outperformance, analysts polled by FactSet expected a potential fall of 4.6% for the region’s banks. On July 19, after Comerica announced its second-quarter results, the company’s stock price fell more than 10%. Chief Executive Curtis Farmer noted at the time that “persistently high interest rates” were putting pressure on bank deposits. Meanwhile, Wall Street is more bullish on U.S. Bank and Fifth Third. Analysts see potential upside for the stock of 8.8% and 3.9%, respectively, based on consensus price targets on FactSet. This year, US Bancorp shares are up 4.9%, and Fifth Third shares are up more than 22%. Truist has gained 18.7% this year, but the stock has fallen 1.9% over the past month. However, 12-month price targets from analysts polled by FactSet suggest the stock could rise 6.7%.
