Investor bankers have taken a beating this year as soaring interest rates and a potential recession are pushing and pulling shares of America’s biggest lenders. Bank of America analysts led by Ebrahim Poonawala see a lot of potential danger to bank stocks, even as the 24-stock KBW Bank Index is down 18% this year. Analysts say the group’s earnings could be hit by slower loan growth, narrower spreads between two- to 10-year Treasury notes and rising defaults, according to a note. The idea was announced on Tuesday. Over the next few months, they said, banks could see an impact from “inflation-driven demand destruction” on US customers that had previously held up well. “The extent of each category remains unknown and explains investors’ reluctance to price higher shares,” Ebrahim writes. “Our consensus forecast assumes credit costs normalize with our expectations for provisions for average loans” to rise 36 basis points next year. One basis point is equal to 1/100 of 1%. While there is a chance that some stocks within Bank of America’s coverage may have bottomed out under a mild recession scenario, risks of a deeper recession will likely continue to weigh on the group, Ebrahim wrote. . “The late investor mindset is hard to dispel and is likely to weigh on valuation multiples,” the analyst wrote. “Deep recession and/or higher inflation remain the main risks.” Faced with that uncertain reality, the Bank of America team highlighted that banks have a combination of factors: the ability to improve results through internal efforts, “idiosyncratic catalysts” and well-managed banks. Here are their top four picks: Bank of America analysts favor Goldman Sachs, even with a conservative valuation relative to its peers due to “slowing capital market activity” . According to Ebrahim, they have a $380 price target on the New York-based investment bank, which includes recession risks. Citigroup is another company with below-average profits, but upside potential is possible if the bank continues to flaunt better-than-expected credit costs and gain market share in the institutional businesses, as it did in the second quarter. Analysts have a $58 price target for the bank. Analysts as well as New York Community Bancorp, cited possible profit from “better-than-expected balance sheet growth.” They have an $11 price target on the regional bank. Western Alliance Bancorp, a regional bank based in Phoenix, Arizona, has benefited from an above-average growth outlook and sensitivity to rising interest rates, both factors that should help deliver results if banks can sustain loan growth, the analysts wrote. They have a $90 price target in the bank. – Michael Bloom of CNBC contributed to this report.