Oppenheimer believes that the turmoil in capital markets will pressure trading, investment banking and asset management revenues. However, most other traditional commercial banking fundamentals will be on a relatively flat trend.

This quarter presents a unique opportunity to see if bank net interest margins do respond to the December rate hike positively. The banks have been telling the public for years that they are very asset sensitive, but actually seeing a bump after 18 consecutive quarters of flat net interest income would set expectations for more improvement from future rate bumps.

For the current quarter, Oppenheimer believes the biggest single moving variable will be the weak capital markets. Trading should be down 15% to 20%, and equity underwriting down by nearly half. Thus, the brokerage firm is trimming its first-quarter estimates for the pure play investment banks, universal banks and regionals with exposure.

Oppenheimer detailed in its report:

The one exception is Capital One Financial Corp. (NYSE: COF), where we are seeing NCOs running higher than we had originally modeled due to the continued mix shift toward subprime revolving consumer credit card growth. With the inflow of problem assets increasing in many of the subprime auto ABS structures, we are taking a more cautious view on Capital One’s credit. This, coupled with our below-consensus PPE estimates, caused us to downgrade Capital One to Underperform (on 4/5/16 at $69.83).

Outside of the subprime consumer, Oppenheimer doesn’t see any signs of strain among other consumer loan categories. On the commercial side, some banks guided to higher reserve additions for energy. However, the firm still believes the energy exposure is manageable, and it didn’t make broad incremental reserve additions across its coverage.

The firm continues to recommend Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C) and Goldman Sachs Group Inc. (NYSE: GS), and now it rates Capital One at Underperform. Oppenheimer raised its price target for Bank of America, Citigroup and Goldman Sachs to $19, $71 and $245 from $18, $67 and $239, respectively. Most of this was driven by market multiple expansion.

Shares of Capital One were trading at $68.34 on Tuesday, with a consensus analyst price target of $81.91 and a 52-week trading range of $58.49 to $92.10.

Bank of America shares were trading at $13.22, with a consensus price target of $17.38 and a 52-week range of $10.99 to $18.48.

Citigroup shares were last seen at $41.50, within a 52-week range of $34.52 to $60.95 and with a consensus price target of $56.12.

Goldman Sachs was trading at $155.72. The consensus price target is $188.04, and the 52-week range is $139.05 to $218.77.

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