Odeon Capital downgraded JPMorgan (JPM) to Hold from Buy, adjusting the price target to $140.00 from $161.00. Despite viewing JPMorgan as the best U.S. bank, analysts anticipate near-term challenges that could impact its stock performance.
Regulatory concerns have arisen post-2008, as the U.S. government regulates bank growth due to potential large bank impacts. According to the analysts, new regulations, like the Basel Endgame, might reduce profitability in market making, limit core lending activities, create operational challenges, and drive the need for more capital much higher. The analysts believe JPMorgan, the country's largest bank, could be significantly affected by these regulations if they go into effect.
On the profit front, JPMorgan's net interest income stands at $80 billion, but falling interest rates might lead to a reduction in earnings by $2-$3 billion. The bank's current net charge-off rate is expected to rise due to consumer sector challenges. Furthermore, the analysts noted that expenses might see an uptick, and anticipated trading rule changes could affect JPMorgan's capital markets revenue.
In light of these risks, Odeon analysts recommend a cautious stance on JPMorgan's stock until there's clarity regarding its earnings trajectory.