On Thursday, JPMorgan (NYSE:JPM) adjusted its stance on U.S. Bancorp (NYSE:USB), downgrading the stock from Overweight to Neutral and setting a new price target at $43.50. The decision comes in light of increased capital requirements which are anticipated to postpone the bank's capital return strategies. According to JPMorgan, the absence of a medium-term catalyst was a significant factor in the reassessment.
U.S. Bancorp's recently updated Common Equity Tier 1 (CET1) ratio, as of March 31, 2024, reveals a slim margin of roughly 20 basis points above the proforma CET1 requirement, which now includes a higher Stress Capital Buffer (SCB). This positions the bank with the smallest cushion compared to its peers, further influencing JPMorgan's revised outlook.
The bank's performance in stress tests was also a concern, showing the second-highest loss rate in the credit card sector at 17.5%. These results are consistent with previously reported figures that indicated U.S. Bancorp's loss rates in this area were higher than many of its major competitors in the credit card market.
Additionally, U.S. Bancorp has experienced moderate growth in payments-related fee income, trailing behind its peers. The expectation of a downturn in spending trends could further impact these revenue streams. Despite the stock's underperformance, JPMorgan notes the lack of additional catalysts that could drive medium-term growth, leading to the firm's decision to adopt a more cautious position on U.S. Bancorp shares.
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