The Ratings Game: Citi adds M&T Bancorp to focus list as favorite among six regional banks

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Citigroup Inc. analyst Keith Horowitz on Thursday singled out M&T Bank Corp. as a new member of his focus list for outshining five other regional banks.

M&T Bank
MTB,
-0.12%

drew praise partly on expected benefits from its acquisition of People’s United Financial, Inc.
PBCT,
-0.14%
,
which is expected to close on April 1.

“We believe there is a step change ahead in earnings power as MTB monetizes their asset sensitivity plus cost saves from deal,” Horowitz said. “Also, MTB has a strong credit profile.”

Citi reiterated a buy rating on M&T Bank and raised its price target to $220 a share from $215 a share.

Horowitz also initiated a “pair trade” position to overweight Citizens Financial Group Inc.
CFG,
+0.43%

and underweight KeyCorp
KEY,
+0.06%
.

“KEY feels constrained to us on the net interest income outlook due to its hedging strategy limiting impact of higher rates,” he said. “CFG has more dry powder to deploy as we leg into the hiking cycle.”

See: Jerome Powell leaves door open for rate hikes larger than 25 basis points

One caveat to Horowitz’s view on Citizens Financial is how he’s viewing cost savings and other benefits of its pending acquisition of Investors Bancorp
ISBC,
+0.35%
.
The bank is expected to provide more clarity on the deal when it reports first-quarter earnings on April 19.

“One of the key risks to this pair trade is our expectations on the ISBC deal integration and [Citizens Financial’s] ability to deliver on cost savings,” he said.

Citi reiterated a buy rating on Citizens Financial Group and cut its price target to $57 a share from $65 a share. The bank also reiterated a neutral rating on KeyCorp and trimmed its price target on the stock by $3, to $26 a share.

Citi maintained buy ratings on Comerica Inc.
CMA,
+0.09%

and Regions Financial Corp.
RF,
+0.42%

and reiterated a neutral rating on Fifth Third Bancorp.
FITB,
-0.35%
.
Citi kept its $115 price target for Comerica and its $27 price target for Regions Financial and trimmed $2 off its price target for Fifth Third to $50 a share.

Horowitz lowered price targets for most of the six banks in reaction to the expected higher cost of capital as the Fed hikes interest rates to try to tame inflation.

“We remain constructive on banks given their leverage to higher [interest] rates,” he said. “For a brief time, we were at a sweet spot for the banks with rates moving higher and a positive GDP growth outlook.”

The bank’s price targets are now more conservative in order to address “non-zero risks of policy error leading to lower target prices on higher cost of capital,” Horowitz said.

While Citi has been rating these stocks prior to the latest comments, Horowitz previously was jointly covering the six banks with Citi analyst Jill Shea.

Shea has since shifted her coverage to other stocks at Citi. Horowitz initiated sole coverage of the six bank stocks on Thursday.

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