Banks face even more Wall Street pessimism as earnings loom

Bank stock downgrades keep piling up as analysts caution about interest rates and credit with fourth-quarter earnings due to kick off next week.

Raymond James downgraded 13 banks on Monday and lowered earnings estimates for most banks across its coverage. Analysts David Long and Michael Rose expect "abundant" downward revisions to net interest margin "with rates no longer providing such a benefit to asset yields, and deposit betas continuing to rise." They also warned of slowing loan growth and accelerating loan loss provisions.

The KBW Bank Index and KBW Regional Banking Index both fell 0.6 percent at 9:37 a.m. in New York. After a brutal 2018, bank stocks had rallied last week after a better-than-expected jobs report and encouraging remarks by Federal Reserve Chairman Jerome Powell.

Raymond James downgraded Business First, Hancock Whitney and Independent Bank to outperform from strong buy. First Horizon, First Midwest, First Republic, Hanmi Financial, LegacyTexas Financial, Towne Bank, United Community Banks and UMB Financial were cut to market perform from outperform. Associated Banc-Corp and Trustmark were lowered underperform from market perform.

Separately, Macquarie analyst David Konrad cut Bank of America to neutral after the stock's recent outperformance. He upgraded Citigroup to outperform, saying a risk-off environment has led to widening valuation gaps among large bank shares.

Goldman Sachs analyst Richard Ramsden downgraded PNC Financial Services Group to neutral, citing slower commercial loan growth and higher deposit betas. He also cut Evercore to sell on expectations for a continued slowdown in mergers and acquisitions. Ramsden sees Bank of America and Wells Fargo as best-positioned for an atmosphere of uncertain revenue growth.

Investors should "prepare for the great divide" with the "inevitable end to the cycle somewhere on the horizon" and competition intensifying, Credit Suisse analyst Susan Roth Katzke wrote in a note to clients. She recommends JPMorgan, Bank of America, Morgan Stanley, Goldman and Citigroup.

Citigroup will kick off earnings for banks on Jan. 14. JPMorgan reports on Jan. 15.