After a volatile two months, regional bank stocks are finally getting a reprieve even as deposit flows still remain under pressure.
Deposits at U.S. banks totaled $17.1 trillion for the week ending May 10, marking a $57 billion drop from the prior week’s levels, according to recent data released by the Federal Reserve. This means that banks gave up almost all of their gains from the previous week. But data also shows that bank investors may not have much reason to worry. The pace of deposit flight is well below the levels seen in March and April when Silicon Valley Bank, Signature Bank and First Republic Bank were collapsing.
And that gives some on Wall Street reason to be hopeful about regional bank stocks.
“No news is good news for depressed regionals,” Brody Preston, analyst at UBS Securities, wrote Tuesday. Although deposits declined, banks saw cash and other assets increase week over week, implying that across the sector balance sheets are in “decent shape,” he wrote.
This is welcome news for regional bank stocks which have been hammered this year as investors fret about deposit flight. The
SPDR S&P Regional Banking ETF
(KRE) was down as much as 43% in early May as panic gripped the sector. The ETF is now down 35%.
Wall Street is now coming around to the notion that overall the banking system is sound and that any other issues are “idiosyncratic,” Preston wrote.
PacWest Bancorp
(PACW) is one bank that has especially come under pressure in recent months with shares down by more than two-thirds this year. Shares plunged more than 50% earlier this month following reports that the Beverly Hills-based bank was weighing strategic options. PacWest shares have recovered from those lows and climbed 7.7% in Tuesday’s trading, continuing an upswing after announcing Monday it was selling a $2.6 billion property-loan portfolio to boost its liquidity.
All of this suggests that much of the turmoil that roiled bank stocks in the past few months is largely in the rearview mirror. Deposit levels may still come under pressure as savers now have better options for earning interest on their savings than their traditional savings accounts but deposits aren’t fleeing because savers fear the solvency of their banks.
All told, the UBS team was generally encouraged by what it saw in recent Fed data as well as other news in the banking sector.
“Putting it all together, this week’s results show that despite the significant discount that remains on regional banks, balance sheets are largely healthy and liquid, and single-stock bad news that seem to drive the group on aggregate are indeed single-stock issues on a fundamental level,” Preston wrote.
Write to Carleton English at [email protected]
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