There was a pause in the slide of regional bank stocks Wednesday, as shares like
PacWest Bancorp
and
Western Alliance Bancorp
found their footing. Wall Street analysts came to their aid.
Shares of PacWest (ticker: PACW) were up 6.7% Wednesday afternoon, to $7, while Western Alliance (WAL) rose 3.3% to $31.96—after their Tuesday tumbles of 28% and 15%, respectively. By comparison, the
S&P 500
and
Dow Jones Industrial Average
were edging slightly higher.
Among other recently weak stocks,
Valley National Bancorp
(VLY) regained 3.1%, to $7.53, after a two day slide.
Zions Bancorporation
(ZION) rose 1.8%, to $24.36, after its 11% drop Tuesday. Dallas-based
Comerica
(CMA) was ahead 1.9% to $37.93 after falling 11% Tuesday.
While investors were unnerved by the wipeout of
First Republic Bank
shareholders in its Monday rescue by
JPMorgan Chase
(JPM), a number of analysts said they could find no fundamental reason for the sector-wide drop that left the
SPDR S&P Regional Banking exchange-traded fund
(KRE) down 9% in the week’s first two days.
“Perception does not sync with reality,” wrote Evercore ISI analyst John Pancari late Tuesday. Despite deposit declines at regional banks in the March quarter, Pancari said most firms had ample liquidity. Lower deposits mean higher funding costs for the banks, but the result will pinch earnings—not trigger a capital crisis.
“Regional banks’ troubles are earnings issues for most, rather than liquidity issues,” said the Evercore analyst.
Yet the stocks are pricing in worse. Since Silicon Valley Bank’s failure triggered the regional bank crisis in March, the regional bank ETF has fallen 32%, versus a 3% gain in the S&P 500.
Stephens analyst Terry McEvoy also said he thinks the sector’s selloff was extreme. Earnings forecasts for Comerica have been reduced after its March quarter deposit losses, wrote McEvoy in a Wednesday note. But with Comerica stock at 4-times his 2023 earnings estimate for the bank, he rates it an Overweight.
At Hovde Group, analyst Ben Gerlinger said the selloff has made shares of Western Alliance attractive. Concern about the Phoenix-based bank’s commercial real estate lending have left shares at a decade-low ratio of price-to-book value of 0.75 and a multiple of next year earnings of 3.5 times.
Gerlinger said he considers Western Alliance management among the best in the sector, and said he believes future profits will vindicate his Outperform rating and expand the stock’s multiple.
Write to Bill Alpert at william.alpert@barrons.com
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