JPMorgan (NYSE:JPM) Says Buy Wells Fargo (NYSE:WFC)


Tuesday, March 2nd, 2010

Basing their recommendation on government support being removed from some types of deposits, JPMorgan (NYSE:JPM) says investors should look at Wells Fargo (NYSE:WFC) options because they should do better than their weaker competitors as a result.

Specifically recommended by the bank would be to use a "call spread" strategy as the means of investing in Wells Fargo.

“This could pressure earnings as weaker banks raise deposit rates and therefore pressure net interest margins,” the strategists at JPMorgan wrote. “Banks that would be especially vulnerable are those that have relatively high loan to deposit ratios and those that have seen strong growth in demand deposits over the past year.”

The idea in all of this is the Federal Deposit Insurance Corp. will sometime soon decrease its backing of accounts which don't bear interest at these banks, and that would place Wells Fargo in a superior position, generating the call to use the spread to benefit from it.

With Wells Fargo emerging fairly strongly from the probable worst part of the great recession, they would be at a competitive advantage once some of the support is dropped out of the system for these types of accounts.

Either way, Wells Fargo has been in general a well-run bank for a long time, this just gives them a potential advantage as the government gets out of interfering in the banking sector.



Article by Gary B

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: call spread , fdic , federal deposit insurance corp , jpmorgan , wells fargo