JPMorgan (JPM), Citigroup (C), and Wells Fargo (WFC) are scheduled to announce quarterly results on July 14. What to watch for: 

2024 ESTIMATE RISK: Wolfe Research downgraded Wells Fargo last week to Peer Perform from Outperform without a price target. The midpoint of the firm's fair value range of $48 supports 12% upside to the shares. Upside to Wells' 2023 net interest income is well understood, but risk to 2024 estimates is less so, says the firm, whose analysis implies $2B of downside. In addition, Wells has higher exposure to commercial real estate loans versus its big bank peers.

PREMIUM MULTIPLE WARRANTED: Last week, Wolfe Research upgraded JPMorgan to Outperform from Peer Perform with a $170 price target. The company's "conservative" net interest income guidance and accretion from its First Republic (FRC) deal are "not adequately reflected" in Street estimates, but favorable loan mix from less commercial real estate exposure and higher credit costs are better reflected in estimates, the firm tells investors. JPMorgan shares trade in line with G-SIB peers despite exhibiting stronger growth and best-in-class share gains, which "warrants a premium multiple," Wolfe Research says.

ATTRACTIVE LONGER TERM: Back in May, JPMorgan announced it has acquired the substantial majority of assets and assumed the deposits and certain other liabilities of First Republic Bank (FRC) from the Federal Deposit Insurance Corporation, or FDIC. As part of the purchase, JPMorgan Chase is assuming all deposits - insured and uninsured. Key transaction elements following the FDIC's competitive bidding process include the acquisition of the substantial majority of First Republic Bank's assets, including approximately $173B of loans and approximately $30B of securities; assumption of approximately $92B of deposits, including $30B of large bank deposits, which will be repaid post-close or eliminated in consolidation.

Commenting on the news, Keefe Bruyette said at the time that it viewed the acquisition of a substantial majority of First Republic Bank's assets and certain liabilities out of receivership as attractive for JPMorgan longer term given the "attractive franchise and ability to maintain relationships" under the JP Morgan brand. That said, the economics initially are not as attractive near-term, with estimated 1% accretion to tangible book value and earnings, the firm added.

Meanwhile, Odeon Capital upgraded JPMorgan to Buy from Hold with a $153.60 price target after the company "won the competition to acquire the now defunct First Republic." JPMorgan could conceivably earn between $500M to $1B-plus in net income from this deal on an annual basis, says the firm, which adds that this deal "may prove to be the best acquisition JPMorgan has made in a couple of decades."

TARGET RAISE: Last week, Morgan Stanley raised the firm's price target on Wells Fargo to $47 from $44, while keeping an Overweight rating on the shares. With tougher capital requirement proposals expected to be released later this month with the Basel III Endgame framework, Wells' excess capital position "stands out among its peers," the firm tells investors in a Q2 large cap banks earnings preview note. Morgan Stanley is modeling the bank to reach a cumulative IB deposit beta of 31%, which would be "the lowest in our coverage group," while at the same time expecting management to maintain a close focus on controlling expenses.

Keeping a Strong Buy on the name, Raymond James also raised the firm's price target on Wells Fargo to $51 from $48 ahead of the Q2 earnings report on July 14. The firm views the bank's net interest income outlook as conversate and sees "several positive catalysts on the horizon, including a lower than peer deposit beta, further expense rationalization, and the eventual removal of consent orders given its improved governance. Raymond James expects Wells will remain opportunistic in repurchasing shares and says its credit trends remain solid.

Late last month, Wells Fargo lowered the firm's price target on Citi to $60 from $65 but kept an Overweight rating on the shares. While Citi is poised to benefit from higher non-U.S. rates, the firm expects more pressure on fees and U.S.-driven net interest income and back-ended transformation expense benefits resulting in lower estimates.

TOP BANK PICKS FOR Q2: Seaport Research says U.S. diversified financials stocks are battling a challenging environment for capital markets in the near-term and still material macro uncertainties, but while the banks may be more of a "less-bad-than-feared" story rather than a growth story, the "good news is that investors seem materially underweight financials and the stocks are cheap by historical standards," which leads the firm to be "more inclined to believe financial stocks can climb the wall of worry." The firm, which sees investors as willing to look beyond near-term challenges toward potentially improving 2024 prospects, identifies Wells Fargo (WFC), BNY Mellon (BK), and Goldman Sachs (GS) as its top picks in the space.

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