After two volatile months, regional bank stocks are finally enjoying some respite even as deposit flows remain under pressure.
Deposits at U.S. banks totaled $17.1 trillion for the week ending May 10, marking a $57 billion drop from levels the previous week, according to recent data released by the Federal Reserve. This means that the banks have given up almost all of their gains from the previous week. But the data also shows that bank investors may not have much to worry about. 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 collapsed.
And that gives some on Wall Street reason to be optimistic about regional bank stocks.
“No news is good news for depressed regions,” Brody Preston, analyst at UBS Securities
,
written Tuesday. Although deposits fell, banks saw their cash and other assets increase week-on-week, implying that balance sheets across the sector are in “decent shape”, it said. he writes.
That’s good news for regional bank stocks that have been hammered this year as investors worry about deposit flight. The SPDR S&P Regional Banking (KRE) ETF fell 43% in early May as panic gripped the sector. The ETF is now down 35%.
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Wall Street is now coming to the view that, overall, the banking system is sound and all other issues are “idiosyncratic,” Preston wrote. PacWest Bancorp (PACW) is one bank that has come under particular pressure in recent months with shares down more than two-thirds this year. Shares plunged more than 50% earlier this month following reports that the Beverly Hills-based bank was considering strategic options. PacWest shares recovered from those lows and soared 7.7% in Tuesday trading, continuing to rise after announcing on Monday that it was selling a $2.6 billion portfolio of home loans to boost its position. liquidity.
All of this suggests that much of the turmoil that has rocked bank stocks in recent months is largely in the rearview mirror. Deposit levels may still be under pressure as savers now have better options for earning interest on their savings than their traditional savings accounts, but deposits are not leaking because savers fear the solvency of their banks.
All in all, the UBS team was generally encouraged by what they saw in recent Fed data as well as other news in the banking industry.
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“Overall, this week’s results show that despite the significant discount remaining on regional banks, balance sheets are largely sound and liquid, and the bad news on a single stock that appears to be driving the group as a whole is in effect single-stock issues on a fundamental level,” Preston wrote.
Write to Carleton English at carleton.english@dowjones.com