Steer clear of First Republic, but Western Alliance and others have been punished too harshly, says one bank analyst. And high preferred stock yields are ripe for the picking.
Regional bank stocks spent last week trying and largely failing to recoup any losses from the contagion fears surrounding the failures of Silicon Valley Bank and Signature Bank, and the crisis appears to be far from over.
The SPDR S&P Regional Banking ETF (KRE) fell 6% Friday and is down 27% in the last month as investors worried about carrying too much risk into the weekend. The next domino fell on Sunday when UBS agreed to buy troubled Credit Suisse for about $3.25 billion in a fire sale, 60% lower than where its stock closed on Friday.
It would be easy for investors to steer clear of the riskiest corner of the current market, but heightened fear can create outsized opportunities, and billionaire Bill Ackman tweeted last week that regional banks are an “incredible bargain.” Analysts emphasize that investors need to be able to stomach some risk but still see signs of hope for some of these stocks.
“The market is in many ways doing a ‘shoot first, figure it out later’ mentality,” says Chris McGratty, head of U.S. bank research at KBW. “Most banks that we’ve talked to had some really unsettling deposit trends last Monday, but each day that’s gone by it’s gotten better.”
McGratty’s favorite stock among the hardest-hit names recently is Phoenix-based Western Alliance Bancorp. (WAL), a bank with $68 billion in assets and 36 locations concentrated in the western United States. Its stock is down 57% in the last two weeks, though it has recovered 25% since its low point last Monday.
