The downgrade was because CFRs stock price has an acquistion premium built in. It is trading at a 17+ P/E ratio. Smith Barney says it is unlikely to be acquired - because managment has no intention to sell (along with several other bank stock they follow). They said a more appropriate multiple is 14x earnings. They rationalize that since HIB is primarily a LA bank (an unattractive market) noone wants to acquire them - which is why they have a 13x P/E ratio. So without the acquisition premium CFR should trade at lower multiples.
Their analysis does not put much weight in the fact that rates are heade up and CFR is one of the most asset sensitive banks in the country.
I honestly don't know why they would downgrade it all the way to a Sell. Of course when I bought it three years ago at $23 Prudential had just put a Sell rating on the stock--that didn't hurt. I could understand if they felt it was fully valued--it's tried to break through $44 several times without success. Still the company is solid--the dividend is decent and has been raised a couple of times during my holding period--the company is buying back shares, and the P/E ratio is quite reasonable. CFR's business model is asset-based so that they benefit from rising interest rates. And they have no exposure to the mortgage business--they refer you to GMAC. I think it's a solid long-term holding.