The sell-off in regional banks may have created a buying opportunity for certain investors in some of the safer, large-cap names, UBS said in a note Thursday. PacWest Bancorp is the latest regional bank to lead the sector lower following news Wednesday it is weighing its options , including a possible sale. The rout began in March with the collapse of Silicon Valley Bank and subsequent deposit outflows in regional banks. On Monday, JPMorgan Chase acquired the majority of assets and deposits of the beleaguered First Republic Bank. “We have been hesitant to pound the table on the sector save for ‘cheap quality’ mega caps (e.g., BAC, WFC) given cyclical and structural concerns, but the negative after-hours action on regional banks has certainly caught our eye,” UBS analyst Erika Najarian wrote. While positive catalysts for the regionals appear scarce, the negatives appear to be fully discounted, she added. “We continue to prefer quality, but for investors that truly have a long-term time horizon, it might be time to start picking off some large-cap regional banks at these price levels,” Najarian said. The name that stands out for her is Citizens Financial Group due to its 0.89 times price to tangible book value, a key valuation metric, and its 10% Common Equity Tier 1 ratio. The CET1 ratio is a measure of the solvency of a bank, or its ability to absorb a financial shock. The Federal Reserve requires a minimum CET1 ratio of 4.5% for its bank stress tests. Shares of Citizens Financial are down nearly 40% year to date. CFG YTD mountain Citizens Financial Group year-to-date performance Another stock highlighted by UBS is KeyCorp . “Implied performance for KEY suggests it would have to raise — which is not our base case,” Najarian wrote. On Monday, JPMorgan Chase CEO Jamie Dimon was optimistic the crisis was largely over. “There may be another smaller one, but this pretty much resolves them all,” he said. Federal Reserve Chair Jerome Powell also called the U.S. banking system ” sound and resilient ” in his post-meeting press conference Wednesday. However, regional banks were under pressure again Thursday. The SPDR S & P Regional Bank ETF (KRE) dropped more than 8%. — CNBC’s Michael Bloom contributed reporting.
UBS says it’s time to start picking up some of the safer regional banks on the cheap
