The sell-off in regional banks is overdone, with four names looking particularly attractive at these levels, according to UBS. While bank stocks rose on Thursday, volatility increased this week. The banking sector began a nosedive just before the Silicon Valley bank collapse and continued this week, although regulators said on Sunday they would prop up SVB depositors. Regional banks were particularly affected. Big banks weren’t immune to the sell-off either, particularly after concerns arose over the health of European banking and the financial position of Credit Suisse. For example, JPMorgan Chase was down nearly 5% on Wednesday and Goldman Sachs was down nearly 10% before rebounding on Thursday. Regional banks were also on guard Thursday after it was revealed that a group of financial institutions are in talks to deposit $30 billion in First Republic, the San Francisco-based lender that led the drop. According to Raymond James, First Republic had the third-highest rate of uninsured deposits behind SVB and Signature Bank, which also closed last weekend. KRE 5D Mountain SPDR S&P Regional Banking ETF UBS analyst Erika Najarian believes fears about deposit runs at the supraregional banks are overdone, noting that these are large-cap stocks, not community-based lenders. Investors also need to keep in mind that not all regional banks are created equal, she added. “We don’t think this group gets credit for having fixed, operating deposits from companies (and these will be in excess of $250,000/account) through treasury management services, a business that is very difficult to win, because it’s difficult to operationalize (and undo),” Najarian wrote in a note Thursday. While regulators are likely to tighten regulatory capital standards, regional banks have time to address it internally, especially if market concerns caused by liquidity constraints ease, she added. Also, losses due to rising interest rates could diminish or potentially reverse if those rates continue to face downward pressure, she said. “As such, we believe investors should not be statically looking at unrealized security losses,” Najarian wrote. Here are four stocks that she thinks stand out from the crowd. Truist Financial and KeyCorp’s stock losses over the past few days suggest a compelling entry point, Najarian said. KeyCorp fell about 25% between the close of Friday and Wednesday. Truist, which hit a 52-week low on Thursday, is down more than 17% over the same period. Meanwhile, Fifth Third Bancorp lost about 16% during that time. But the Cincinnati-based bank recently underwent a transformation that resulted in a 700 basis point improvement in its natural return on average tangible common equity (ROTCE), excluding special gains and losses, Najarian pointed out. ROTCE is a measurement banks use to assess overall and individual business unit performance. “The transition to a high quality local product appears to be fully priced out of inventory at current levels,” she wrote. Fifth Third Bancorp’s CEO and chief financial officer are also impressive, she added. CEO Timothy Spence is often credited with accelerating the bank’s digital transformation, and CFO Jamie Leonard’s balance sheet risk management is often recognized as best-in-class, Najaorian said. Finally, Huntington Bancshares has been hit particularly hard in terms of its fundamentals, she said. The bank has a “hard retail deposit base, which accounts for 63% of the total, and an underestimated operating corporate deposit base,” she said. Huntington is down nearly 19% between Friday’s and Wednesday’s close.
