The SVB crisis has opened up a window to buy 'great banks at a severe discount' after a panic-induced sell-off, CFRA says

• The recent bank chaos has opened the door to buying solid bank stocks at a discount, CFRA said.
• East West Bancorp and Citizens Financial made its list of stocks investors should look at.

Investors should look at buying the dip in shares of some resilient regional banks after they were crushed following the abrupt failures of Silicon Valley Bank and Signature Bank, CFRA said this week.

Regional banks that maintain strong deposit balances and have high percentages of insured deposits are key characteristics of lenders whose shares should be under consideration by investors, with East West Bancorp and Regions Financial among them, the investment firm said in a research note published Tuesday.

"[We] see an enhanced opportunity to pick up several resilient regional banks that have fallen 15%-25% over the last three weeks," wrote equity analyst Alexander Yokum after this month's collapse of tech startups lender SVB and crypto-friendly Signature Bank.

The banks after facing separate and crippling stressors were seized by regulators to stave off a broader run on deposits at small and mid-sized banks.

The S&P 500 Regional Banks sub-index underperformed the S&P 500 by a "stunning" 35% since March 6, Yokum said. "However, we view some banks as well positioned in the current environment and see this as an opportunity to pick up great banks at a severe discount."

Stable and insured deposits

Regional banks with stable deposit balances should outperform, he said. Even though SVB and Signature Bank collapsed suddenly, signs of trouble had been brewing for months.

Signature Bank had a 19% drop in deposits in the final three quarters of 2022 as crypto prices sank. Silicon Valley Bank's deposits fell 13% during that same period as the bank's primary venture capital customers struggled with rising interest rates.

But East West Bancorp led the way in deposit momentum during that same timeframe as its deposits grew 2%, said Yokum, who has a "strong buy" rating on the lender.

"Additionally, unlike most other regional banks, EWBC had the courage to give a deposit update following the collapse of SIVB, stating that year-to-date (YTD) consumer deposits were up 3% and commercial deposits were relatively stable," said Yokum. East West Bancorp shares have declined about 14% during 2023.

Other banks with recent deposit momentum include Citizens Financial Group, Synovus Financial and Webster Financial, with each ending last year with deposits at or near all-time highs.

"Going forward, we view any bank with under 20% of insured deposits (like SBNY at 10%) as particularly vulnerable," said Yokum.

Banks with high levels of insured deposits are also now well-positioned. Yokum called Regions Financial is a leader in insured deposits, with an outsized 63% of its deposits insured. "The bank has a strong retail presence, and its Consumer Bank segment makes up more than 50% of its revenue."

Yokum has "buy" ratings on Citizens Financial Group, Fifth Third Bancorp, Regions Financial, Synovus Financial and Webster Financial.