CIBC World Markets initiated coverage of six large-cap banking companies Tuesday, including Bank of America Corp., which was called the "sector outperformer" and JPMorgan Chase & Co., which was called the "sector underperformer."
Meredith Whitney, an analyst who joined the wholesale banking arm of Canadian Imperial Bank of Commerce in October, gave Wachovia Corp., Wells Fargo & Co., Citigroup Inc., and U.S. Bancorp "sector performer" ratings.
In a research note, Ms. Whitney wrote that the "strong headwinds" of a flattening yield curve, slowing consumer loan growth, improving but still-weak commercial loan demand, and rising credit costs "will strongly temper investor interest in this group."
She rated the entire large-cap banking sector "market weight."
B of A offers "the best value in the group and can grow earnings at one of the highest rates," because it has already surpassed investor expectations in integrating FleetBoston Financial Corp., Ms. Whitney wrote.
The $1.1 trillion-asset Charlotte company also has a truly national area of operations and a "critical head-start advantage" over banking companies of similar size when it comes to serving Hispanics, a growing target market for banks, she said.
Ms. Whitney's earnings per share estimate for B of A is $4.06 for 2005 and $4.50 for next year.
Not all analysts are as enthusiastic about B of A's prospects. On Monday, Phillip M. Kain of Marquis Investment Research in Chicago lowered his rating for the stock to "sell," from "hold."
B of A will have problems meeting first-half earnings estimates, because of net interest margin compression, merger integration expenses, and a lack of big gains from securities sales, Mr. Kain said.
Jeff Harte, an analyst at Sandler O'Neill & Partners LP, said in an interview Wednesday that B of A's shares will continue to outperform those of regional banking companies, but not other money-center banks, which have "a much more favorable business mix."
Ms. Whitney wrote that JPMorgan Chase could "surprise on the downside" this year; she predicted that its earnings per share may fall short of the average estimate of $3.05. Her estimate is $2.90.
Shares of the $1.1 trillion-asset company did not get an "initial pop" after it bought Bank One Corp. in July, she said. The deal brought in James Dimon - whose performance-focused management style has won praise from Wall Street - as the president and chief operating officer.
With Mr. Dimon set to become the chief executive next year, JPMorgan Chase has "ambitious" goals of cutting risk, boosting efficiency, and reducing earnings volatility, but it may take him longer than three years to achieve them, Ms. Whitney wrote. (That is how long it took him to implement similar changes as the CEO at Bank One, she wrote.)
Neither B of A nor JPMorgan Chase would not discuss Ms. Whitney's note Wednesday.
JPMorgan Chase's shares have dropped 2% since July, while shares of B of A have risen 13% and the American Banker index of top 50 banks has risen 8.5%.
Ms. Whitney, most recently a market commentator for Fox News, was previously an analyst at First Union Securities and Oppenheimer & Co.
