Regional bank stocks were rebounding Friday following a week of brutal declines as one analyst upgraded shares of several regional bank stocks.
That would be J.P. Morgan analyst Steven Alexopoulos, who upgraded shares of Western Alliance and
Comerica
to Overweight from Neutral and Zion Bancorp to Overweight from Underweight on Friday.
Whether it’s because of the upgrades or a combination of factors, Western Alliance (ticker: WAL) stock had surged 33% on Friday and was on pace for its largest percent increase since September 2008, according to Dow Jones Market Data. Comerica (CMA) and Zions Bancorp (ZION) both gained 13% and were on pace for their largest increases since November 2020. All told, the
SPDR S&P Regional Banking exchange-traded fund
(KRE) has gained 5.7%, trouncing the
S&P 500’s
1.6% rise. These rallies follow a brutal Thursday when the stocks all had record tumbles.
It was hoped JPMorgan Chase‘s (
JPM
) purchase of First Republic’s assets on Monday would quell the market jitters, but they have only intensified. And even comments from Federal Reserve Chairman Jerome Powell, who said the banking system was “sound and resilient” on Wednesday, didn’t help matters.
Instead, they seem to have forced investors to consider whether other lenders that might have experienced similar problems., including deposit flight. PacWest shares dropped 50% on Thursday, despite the company saying it hadn’t seen any unusual deposit outflows since the collapse of First Republic at the start of the week. Western Alliance sank as well Thursday after releasing data that showed it hadn’t had unusual deposit outflows in recent days and that its capital base remains strong.
And that’s where J.P. Morgan’s Alexopoulos comes in. “We believe a sell-off in regional banks has become a catalyst itself to cause further fear and selling pressure,” he wrote in a research note Friday.
He doesn’t think it’s deserved. Alexopoulos noted that despite street fears, regional banks reported decent quarters, and deposit outflows following the collapse of
SVB
have stabilized. Despite this, there has been strong selling pressure on the banks amid speculations of receiverships and concerns around the broader financial sector as interest rates continue to climb. This has led to deeply discounted valuations on regional banking stocks, Alexopoulos said.
Western Alliance is currently trading at 2.3 times forward earnings. Comerica is trading at 3.9 times forward earnings and Zions Bancorp is trading at 3.8 times forward earnings. These are all significantly below their historical averages, and have created a buying opportunity for a sector that has the potential to rebound, Alexopoulos said.
“Should actions be taken to support the regional banks, at current valuations there could be considerable upside to the sector,” the analyst noted.
The risk of course that Friday’s rally is just a one-day bounce before the selling resumes again. “There’s no doubt that this is a nervous time for markets as we wait for the next series of resolutions in the U.S. regional banking crisis,” said Deutsche Bank analyst Jim Reid. The “scary thing is that the attacks are increasingly looking speculative but risk is becoming self-fulfilling.”
At least one analyst, though, is betting that it won’t stay that way.
Write to Brian Swint at [email protected]
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