The sell-off at regional banks is exaggerated, with four names UBS says look particularly attractive at these levels. While bank stocks rallied higher on Thursday, volatility has increased this week. The banking sector began a nosedive shortly before the collapse of Silicon Valley Bank (SVB) and has continued this week despite regulators saying on Sunday they would backstop SVB depositors. Regional banks were particularly hard hit. Major banks were also not immune to the sell-off, especially after concerns were raised about the health of Europe’s banking system and the financial condition of Credit Suisse. JPMorgan Chase, for example, fell nearly 5% and Goldman Sachs plunged nearly 10% on Wednesday, before recovering on Thursday. Regional banks were also abreast of reports Thursday that a group of financial institutions is in talks to deposit about $20 billion into First Republic, the San Francisco-based lender that had led the decline. According to Raymond James, First Republic had the third highest percentage of uninsured deposits, behind SVB and Signature Bank, which also closed over the weekend. KRE 5D mountain SPDR S&P Regional Banking ETF UBS analyst Erika Najarian believes fears of deposit runs at the super-regional banks are exaggerated, noting that they are large-cap stocks, not community lenders. Investors should also remember that not all regional banks are created equal, she added. “We don’t think this group gets credit for having sticky, operational corporate deposits (and they will be over $250,000/account) through treasury management services, a business that is very hard to win because it’s challenging to operationally deploy. (and undo),” Najarian wrote in a note on Thursday. While regulators are likely to tighten regulatory capital standards, regional banks have time to address this internally, especially as market problems caused by liquidity stress ease, she added. Also, losses from rising interest rates could diminish or potentially be reversed if those rates remain under downward pressure, she said. “That is why we believe that investors should not look at unrealized securities losses in a static way,” Najarian wrote. Here are four stocks that she says stand out from the crowd. Truist Financial and KeyCorp stock losses in recent days point to an attractive entry point, Najarian said. KeyCorp was down about 25% between Friday’s and Wednesday’s close. Truit, which hit a 52-week low on Thursday, lost more than 17% in the same period. Meanwhile, Fifth Third Bancorp lost about 16% during that time. Still, the Cincinnati-based bank recently underwent a transformation that led to a 700 basis point improvement in its natural return on average tangible common equity (ROTCE), excluding special gains and losses, Najarian stressed. ROTCE is a measurement banks use to assess overall performance and how individual business units are performing. “The move to a high-value region appears to be completely priced out of stock at current levels,” she wrote. Fifth Third Bancorp’s CEO and chief financial officer are also impressive, she added. CEO Timothy Spence is often credited with accelerating the bank’s digital transformation, and CFO Jamie Leonard’s balance sheet risk management is often recognized as the best among his peers, Najaorian said. Finally, Huntington Bancshares has been particularly hard hit relative to fundamentals, she said. The bank has a “sticky retail deposit base that makes up 63% of the total, and an underrated operational corporate deposit base,” she said. Huntington lost nearly 19% between Friday’s and Wednesday’s close.
Four regional bank stocks for the brave to buy, according to UBS
Bank of the First Republic, Banks, business news, Credit Suisse Group AG, Fifth Third Bancorp, finance, Goldman Sachs Group Inc, Huntington Bank Stocks, Investment strategy, JPMorgan Chase & Co, Key Corp, Raymond James Financial Inc, Shares market, signature bank, SVB Financial Group, Truist Financial Corp
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