Bank of America, KeyCorp raised to Market Perform at KBW as 10Y yield eases

KBW upgraded Bank of America (NYSE:BAC) and KeyCorp (NYSE:KEY) to Market Perform from Underperform as analyst David Konrad sees the banks in better position with the 10-year Treasury yield easing from its recent peak.

For Bank of America (BAC), the move down in the 10-year yield, prompted by the better-than-expected productivity report and weaker-than-expected jobs report, reduces some risk on the mark-to-market held to maturity portfolio, Konrad said, pointing out that unrealized losses of its HTM book accounted for ~70% of tangible common equity.

"We believe the lower rates may drive favorable positioning in the stock, and we believe the stock's valuation is more attractive at 1.05x 2024 tangible book value, 95% of 2025 TBV, and a 12 % discount to JPMorgan Chase (JPM) on 2025E. In addition, KBW's preprovision net revenue estimates are now in line with consensus.

For KeyCorp (KEY), the reduced pressure on long-term rates provides more visibility on the bank's capital. "Based on improving back book repricing on swaps and Treasury portfolio, we expect the exit rate return on tangible common equity to be ~17% in 2025 with a fully phased-in CET1 of 8.7% (including Basel III), only 60 basis points below peers," Konrad wrote in a note to clients.

KBW's Market Perform rating on Bank of America (BAC) aligns with the SA Quant rating of Hold. Meanwhile, the average SA Analyst rating and the average Wall Street rating stand at Buy. The situation is the same with KeyCorp (KEY): SA Quant rating at Hold, and the average SA Analyst rating and average Wall Street rating both at Buy.