SPDR S&P Regional Banking ETF – Page 5

First Republic shares slid almost 33% after deposit infusion, dragging down other regional banks

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People are seen inside the First Republic Bank branch in Midtown Manhattan in New York City, New York, U.S., March 13, 2023. REUTERS/Mike Segar

Mike Segar | Reuters

Shares of First Republic were under severe pressure Friday despite the beaten-down regional bank receiving aid from other financial institutions the day before.

At the market close, the stock was down 32.8%, the worst performer in the SPDR S&P Regional Banking ETF (KRE) — which dropped 6.0%. PacWest lost 19% and Western Alliance dropped 15%, while US Bancorp declined more than 9%.

Those losses came even after 11 other banks pledged to deposit $30 billion in First Republic as a vote of confidence in the company.

“This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities,” the group, which included Goldman Sachs, Morgan Stanley and Citigroup, said in a statement.

First Republic Bank continued to crater on Friday.

There were concerns that Thursday’s deposit infusion may still not be enough to shore up First Republic in the future.

Atlantic Equities downgraded First Republic to neutral, noting the bank may need an additional $5 billion in capital.

“Management is exploring different strategic options which may include a full sale or divestments of parts of the loan portfolio. The limited information provided implies that the balance sheet has increased substantially, which may well necessitate a capital raise,” analyst John Heagerty wrote.

Meanwhile, Wedbush analysts put a $5 price target on First Republic, saying that a takeover could wipe out most of its equity value.

“A distressed M&A sale could result in minimal, if any, residual value to common equity holders owing to FRC’s significant negative tangible book value after taking into account fair value marks on its loans and securities.”

Late Friday, after the stock market closed, the New York Times reported that First Republic was in talks to raise capital by selling shares to other unnamed banks or private equity firms in a private sale. Terms of the deal, as to the price of the shares, how many and to whom, were still under discussion, and it was also possible that the entire bank might be sold, the Times said.

— CNBC’s Michael Bloom and Scott Schnipper contributed to this report.

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March 17, 2023

Bank shares rebound off lows as big banks come to the aid of First Republic

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Traders gather at the post where First Republic Bank as the stock is halted from being traded on the floor of the New York Stock Exchange (NYSE) in New York City, March 15, 2023.

Brendan McDermid | Reuters

Shares of First Republic reversed their losses and regional bank stocks pushed higher as 11 major U.S. banks are struck a rescue deal for the firm.

First Republic shares closed up nearly 10% after the news. The stock had been down more than 30% earlier in the day.

Elsewhere, the SPDR S&P Regional Bank ETF (KRE) rose 3.5%, while Western Alliance and Zions Bancorp. gained 14.1% and 4.6%, respectively. All three had declined earlier in the session.

The collapse of Silicon Valley Bank last Friday has left investors scrambling to identify other regional banks that have similar balance sheet issues, namely a high rate of uninsured deposits and bonds or loans with a long time to maturity.

First Republic had the third-highest rate of uninsured deposits among U.S. banks, behind SVB and Signature Bank, which was closed by regulators over the weekend, according to a note from Raymond James. First Republic’s stock was down nearly 75% in March as of Wednesday’s close, and the bank’s debt has been downgraded by S&P Global Ratings and Fitch Ratings.

The plan announced on Wednesday called for $30 billion in deposits from major banks, including JPMorgan Chase and Bank of America, as a show of confidence in the regional banking system.

First Republic’s stock has been under pressure since the collapse of SVB.

The struggles for regional bank stocks early this week came despite the announcement from U.S. regulators over the weekend of additional support. That included a new program from the Federal Reserve that allowed banks to swap some assets for cash without having to realize the mark-to-market losses caused by higher interest rates.

First Republic said Sunday it had more than $70 billion in liquidity, not counting any additional support from the new Fed program.

In addition to the fears of more bank failures, the potential for increased regulation and smaller deposit bases for midsized banks could also be hurting the stocks as investors assess the future earnings power of the regionals.

The banking system got another shock Wednesday, when Credit Suisse‘s Swiss-traded shares fell more than 20% amid concerns that the bank’s “material weakness” in its financial reporting could lead to it needing to raise more capital. However, the Swiss National Bank, the country’s central bank, struck a deal with Credit Suisse to allow it to borrow up to roughly $54 billion.

But while Credit Suisse’s struggles could have ripple effects throughout the global banking system, the Swiss bank’s problems appear to be unrelated to the U.S. regional banks.

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March 16, 2023

One of the best ways to figure out what the Fed will do next is to look at regional bank stocks

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Federal Reserve Board Chair Jerome Powell speaks at a news conference following a two-day meeting of the Federal Open Market Committee, Wednesday, Sept. 18, 2019, in Washington.

Patrick Semansky | AP

Markets have changed their mind — again — about what they think the Federal Reserve will do next week regarding interest rates.

In a morning where more banking turmoil emerged and stocks opened sharply lower on Wall Street, traders shifted pricing to indicate that the Fed may hold the line when it meets March 21-22.

The probability for no rate hike shot up to as high as 65%, according to CME Group data Wednesday morning. Trading was volatile, though, and the latest moves suggested nearly a 50-50 split between no rate hike and a 0.25 percentage point move. For most of Tuesday, markets indicated a strong likelihood of an increase.

Chairman Jerome Powell and his fellow Fed policymakers will resolve the question over raising rates by watching macroeconomic reports that continue to flow in, as well as data from regional banks and their share prices that could provide larger clues about the health of the financial sector.

Smaller banks have been under intense pressure in recent days, following the closures of Silicon Valley Bank and Signature Bank, the second- and third-largest failures in U.S. history. The SPDR Regional Bank ETF fell another 1.5% on Wednesday and is down more than 23% over the past five trading days.

SPDR S&P Regional Bank ETF, 5 days

In a dramatic move Sunday evening, the central bank launched an initiative it called the Bank Term Funding Program. That will provide a facility for banks to exchange high-quality collateral for loans so they can ensure operations.

Inflows to impacted banks could be reflected through their share prices to indicate how well the Fed’s initiative is working out to maintain confidence in the industry and keep money flowing.

Central bank officials also will get data in coming days to see how active banks are in using the facility.

If banks are using the BTFP to a large extent, that could indicate significant liquidity issues and thus serve as a deterrent to raising rates. The last public report on that data will come Thursday, though the Fed will be able to monitor the program right up until its two-day meeting starts Tuesday.

The wagers on which way the Fed ultimately will go followed a rocky morning on Wall Street. Stocks were sharply lower in early trading, with the Dow Jones Industrial Average down more than 500 points.

Fed should be cautious for now but then resume hiking cycle, strategist says

Just as concerns started to diminish concerning banking sector health, news came that Credit Suisse may need a lifeline. Switzerland’s second-largest bank slumped after a major Saudi investor said it would not provide more capital due to regulatory issues.

The slump came even as economic data seemed to lessen the urgency around controlling inflation.

The producer price index, a measure of wholesale pipeline prices, unexpectedly dropped 0.1% in February, according to the Labor Department. While markets don’t often pay much attention to the PPI, the Fed considers it a leading indicator on inflation pressures.

On an annual basis, the PPI gain dropped to 4.6%, a big slide from the 5.7% reading in January that itself was revised lower. The PPI peaked at a rate of 11.6% in March 2022; the February reading was the lowest going back to March 2021. Excluding food and energy, the core PPI was flat on the month and up 4.4% year over year, down from 5% in January.

“The strong likelihood of continued rapid core PPI disinflation is at the heart of our relatively optimistic take on core [personal consumption expenditures] inflation and, ultimately, Fed policy,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Markets don’t pay much attention to the PPI, but the Fed does.”

The PPI data coupled with a relatively tame consumer price index report Tuesday. Markets last week were pricing in a potential half-point rate hike this month, but quickly pulled back.

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March 15, 2023

Financial shares fall as Credit Suisse becomes latest crisis for the sector

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, March 13, 2023.

Brendan McDermid | Reuters

Bank stocks were under pressure on Wednesday as the sharp drop of Credit Suisse rattled a segment of the market that was already reeling from two large bank failures in the past week.

Shares of the Swiss bank fell more than 27% after its biggest backer said it won’t provide further financial support. Credit Suisse announced on Tuesday that it had found “material weakness” in its financial reporting process from prior years. Other European banks also slid, including an 8% drop for Deutsche Bank.

The move appeared to be hitting large U.S. banks as well. Shares of Wells Fargo and Citi fell more than 4% each in premarket trading, while Bank of America dipped 3%. JPMorgan and Goldman shed more than 2%.

Shares of Wells Fargo were under pressure on Wednesday.

Credit Suisse struggles come on the heels of the collapse of Silicon Valley Bank and Signature Bank in the U.S. Those failures caused steep sell-offs in regional bank stocks on Monday. The SPDR S&P Regional Bank ETF (KRE) fell more than 4% in premarket trading on Wednesday. Zions Bancorp and Western Alliance each fell more than 6%.

While Credit Suisse’s struggles appear unrelated to the mid-tier U.S. banks, the combination of the two issues could spark a broader reexamination of the banking system among investors, according to Peter Boockvar of Bleakley Financial Group.

“What this is telling us is there’s the potential for just a large credit extension contraction that banks are going to embark on [to] focus more on firming up balance sheets and rather than focus on lending,” Boockvar said on CNBC’s “Squawk Box.”

“It’s a balance sheet rethink that the markets have. Also you have to wonder with a lot of these banks if they’re going to have to start going out and raising equity,” he added.

In that vein, Wells Fargo on Tuesday filed to raise $9.5 billion of capital through the sale of debt, warrants and other securities. The bank said the new cash will be used for general corporate purposes.

The fallout from the collapse of SVB could also lead to more regulation and rising costs for the U.S. banking sector, including the potential for higher fees to regulators to pay for deposit insurance.

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March 15, 2023

First Republic shares jump 20% as regional banks try to rebound from Monday’s sell-off

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A First Republic Bank branch in New York, US, on Friday, March 10, 2023.

Jeenah Moon | Bloomberg | Getty Images

Shares of First Republic were up sharply in early Tuesday trading as concern over the state of the regional bank appeared to ease after a day of heavy selling.

The stock traded 20% higher in the premarket and was one of the best-performing names in the SPDR S&P Regional Banking ETF (KRE) — which was up 5%. Shares of other regional banks also surged before the bell. PacWest jumped nearly 30%, KeyCorp gained 15%, and Zions Bancorp advanced 10%.

Charles Schwab was also rebounding, gaining 8% in premarket trading after dropping nearly 12% on Monday.

Those moves come after regional banks fell sharply on Monday, even after U.S. regulators took extraordinary measures to backstop all depositors in the now-failed Silicon Valley Bank. The KRE suffered its biggest one-day loss since March 2020, losing 12.3%.

First Republic led the way lower, losing 61.8%. Executive Chairman Jim Herbert told CNBC’s Jim Cramer that the bank was not seeing big outflows and was operating as usual. The bank also announced Sunday it received additional liquidity from JPMorgan and the Federal Reserve.

In addition the backstopping SVB’s deposits, federal regulators also announced efforts on Sunday to stabilize the wider banking system. One of those is the Fed’s Bank Term Lending Program, which will allow banks to exchange certain high-quality assets for cash without booking mark-to-market losses.

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March 14, 2023

Regional bank stock plunge creating key entry point for investors, top analyst says

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The dramatic drop in regional bank stocks is a key entry point for investors, according to analyst Christopher Marinac.

Marinac, who serves as Director of Research at Janney Montgomery Scott, believes the group’s decline over the past week provides an attractive entry point for investors because underlying business fundamentals remain intact.

“We have definitely slipped on a banana peel as it pertains to this deposit worry and scare,” Marinac told CNBC’s “Fast Money” on Monday.

The SPDR S&P Regional Banking ETF dropped by more than 12% on Monday after regulators shuttered Silicon Valley Bank and Signature Bank. They’re the second- and third-largest bank failures, respectively, in U.S. history.

“The main lending in America is still mid-size and small community banks,” he added. “Those companies are excellent plays.”

When asked which regional banks look most attractive, Marinac recommends Fifth Third Bank. The stock is off more than 27% over the past week.

“They’re a very innovative company in the fintech arena, which still has merit as we go forward,” he said, adding that CEO Timothy Spence has an “excellent” handle on interest rate risk and credit.

Marinac also named Truist as a top sector pick, saying the company has a competitive advantage among regional banks after selling a portion of its insurance unit. Truist stock has dropped 30% over the past five sessions.

“That’s going to help them pass the stress test in June, so that company certainly is not only a survivor, but a thriver,” he said.

On the longer-term outlook for regionals, Marinac expects the group to pare its losses.

“Eventually, the storm will calm and the seas will part such that banks can go back to trading at book value and higher as we go forward,” Marinac said.

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March 13, 2023

Wall Street’s most overbought stocks include PepsiCo and this little-known insurance company

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February 26, 2023

Op-ed: Financials may get more love amid sustained higher interest rates

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Credit card providers are benefitting from post-pandemic travel and increasing card usage in general, with balances way up in recent months.

Valentinrussanov | E+ | Getty Images

Financial stocks were so out of favor for most of 2022 that perhaps their tickers should have been appended with a Nathaniel Hawthorne-esque “U” — for “unloved.” Yet after some decent gains so far this year, the sector could draw suitors aplenty as 2023 progresses.

The present allure of financial stocks, stemming from low valuations and high levels of capital, is especially strong as higher interest rates are making lending money more profitable.

As of mid-February, the Financial Select Sector SPDR ETF had recovered about half its 2022 losses. Amid this comeback, robust earnings have kept the sector’s price-earnings ratios low, as reflected by XLF’s P/E of 14.5 in mid-February.

Buckets are out at the banks

Low share prices are the norm

Despite gains this year, share prices of this sector are still quite low, considering good earnings and a long history of corporate performance.

One reason for the low prices is fear of recession. But even if the most widely anticipated recession ever actually becomes reality, assuming that the short-and-shallow camp turns out to be right, financial sector earnings could easily prove more resilient than normally expected in a downturn.

Also tamping down prices is long-term market perception, said Christopher Davis, portfolio manager and chairman of Davis Advisors in New York. Several months ago, he made the case that financials tend to be mispriced because they’re “widely misunderstood,” adding the sector was (and still is, in my opinion) “primed for long-term revaluation.”

Revaluation could be in the offing, as indicated by shifts in the sector’s technical indicators, especially those for diversified financial companies and insurance companies, following growth in the latter this year. As of late February, Invesco KBW Property & Casualty Insurance ETF was up more than 14% over the preceding six months. After taking big hits from Hurricane Ian last year, insurance companies are getting more respect from analysts now that they are on firmer footing in fairer weather.

A close haircut for regional banks

Regional banks, which took a close haircut early last year after hitting a five-year peak in January, are also recovering. The bellwether ETF for this group, SPDR Regional Banking, was up nearly 9% year to date as of mid-February. Many regional banks have recently been buying back shares to support a floor on prices and give shareholders more total return without getting locked into dividend increases.

Meanwhile, credit card providers are benefitting from post-pandemic travel and increasing card usage in general, with balances way up in recent months. Also positive are prospects for exchanges and data providers, a sector category whose earnings in recent years have grown twice as fast as those of the S&P 500.

Here are some attractive financial stocks with strong growth prospects and fundamental metrics signaling low downside risk:

Truist Financial: Formed in 2019 by a merger of equals — regional banks BB&T Corp. and SunTrust — Truist is now the nation’s seventh-largest bank, with a capitalized ratio nearly twice what’s required by regulators. Truist’s dividend has more than doubled in the last 10 years. Post-merger kinks typically dampen companies’ share price growth, so Truist’s recent underperformance relative to KRE was expected. And Truist’s growth could exceed peers’ because it operates in rapidly growing regions — primarily, the mid-Atlantic and Southeast.

East West Bancorp: This is a fast-growing, full-service commercial bank with locations in the U.S., serving the Asian-American community, and in China. Shares were up nearly 19% year to date as of mid-February. This growth is expected to accelerate from China’s reopening from Covid lockdowns. CFRA has this bank as a strong buy, forecasting 2023 growth of 17% to 19%, in part because net interest income currently makes up 89% of its revenue, versus 73% for peers. Also, the bank has “no exposure to mortgage banking or capital markets, which have been severely impacted by rising rates and economic uncertainty,” CFRA states, citing balance sheet momentum, a discounted valuation and the advantage of a Chinese population in the U.S. that’s growing faster than the whole.

FactSet Research Systems: FactSet is the star of the sector’s data-provider segment. It’s an interesting, attractive play with recurring revenues of 98%, largely because financial firm customers rely so heavily on FDS’s data. You can see it cited on brokerage platforms and analyst reports. FDS’s software, data and analytics supports the workflow of both buy-side and sell-side clients. Customers include asset managers, bankers, wealth managers, asset owners, hedge funds, corporate users, and private equity and venture capital professionals. The company has an excellent track record of maneuvering through tough economic times, evidenced by its top-line sales growth for 42 consecutive years and annual dividend raises for the last 23 years. The difficulties of changing data providers amount to an economic moat that’s daunting to competitors.

American Express: This is the right business at the right time, with business travel improving, China reopening and consumer spending among the affluent strong. Revenue growth went from a 10-year stretch of 2% annually to 25% in 2022, with 17% growth forecast for this year. Connecting better with millennials and Generation Z customers than its peers, American Express is acquiring new cardholders at an increasing rate. Analysts expect earnings to rocket up 30% over the next two years, while those of competitors appear likely to shrink. And because of well-heeled customers, this company has less credit risk than its peers.

Chubb: Chubb is the world’s largest publicly traded property and casualty insurer, operating in 54 countries but with 60% of its revenue from North America. CB has a market-leading position in industrial, commercial and mid-market traditional and specialty property-casualty coverage. It is also a leader in high net worth personal-insurance coverage, a category unlikely to feel pain from an economic downturn. Chubb has high-quality underwriting, but shares are trading at a discount to peers with lower-quality underwriting. Higher premiums, a 98.4% customer-retention rate and higher interest rates should all contribute to strong earnings growth, and shares are widely viewed as significantly undervalued.

The current, higher rates aren’t going down anytime soon. This sector is currently positioned for sustained earnings strength and likely price growth throughout this year and into 2024.

— By Dave Sheaff Gilreath, CFP, partner and chief investment officer of Sheaff Brock Investment Advisors LLC and Innovative Portfolios LLC.

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February 23, 2023

Tag: SPDR S&P Regional Banking ETF