What now
Shares of several bank stocks moved higher this week as investors started to get more comfortable with the sector in the wake of the banking crisis.
Shares of PacWest Bancorp (PACW) traded nearly 19% higher for the week as of the market close Thursday, according to data from S&P Global Market Intelligence. Meanwhile, shares of Customers Bancorp (CUBI -1.08%) traded roughly 10.4% higher, while shares of Merchants Bancorp (MBIN -3.88%) were up more than 11%.
So what
While there's still plenty of uncertainty, investors seem to be buying bank stocks this week based on the fact that there hasn't been too much bad news around the banking sector recently, and deposit costs have been on the rise in May.
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"Our baseline does not anticipate a further intensification of banking stresses," Deutsche Bank analysts wrote in a research note on Monday.
U.S. Treasury Secretary Janet Yellen also made some more positive comments about the U.S. banking system and said she thinks the industry will generally be able to handle issues that arise in commercial real estate.
"My overall read is that the level of capital and liquidity in the banking system is strong, and while there will be some pain associated with this, the banks should be able to handle the strain," she said.
In other news, Odeon Capital analyst Richard Bove today initiated coverage of PacWest, one of the hardest-hit bank stocks since the banking crisis, giving it a hold rating. PacWest was one bank that saw a pretty significant decline in deposits during the banking crisis, but in general, Bove said he has been impressed with how quickly management responded in a difficult situation.
When deposits declined, PacWest brought higher-cost funding onto the balance sheet to plug up the hole, closed certain businesses, and sold a portfolio of construction loans to bolster its capital position.
"In sum this is a high-risk situation, so I am not recommending purchase of this bank," Bove wrote in a research note. "However, fears of the company disappearing may have dissipated so that speculators might wish to continue to hold the stock."
Bove also noted that PacWest might end up selling the bank, but even if it does, that doesn't mean it would get a good price close to where it traded before all of this.
Now what
I agree with Bove's take on PacWest, which is pretty much what I've been saying in past articles. While there certainly could be a lot of upside here, the situation can still change quickly, given how volatile things have been for the bank, so I wouldn't recommend anything more than a small speculative position right now.
I personally like Customers Bancorp and think the stock is a buy. Even after the run this week, it still only trades at just 70% of its tangible book value, or net worth. The bank is developing a number of niche businesses and puts up strong returns, although I would like to see it continue to develop a lower-cost core deposit franchise, but the valuation is extremely compelling.
Merchants Bancorp has been an extremely high-performing bank over the years, and the stock is actually up more than 13% this year, which is great for a bank. It runs an interesting model that depends heavily on higher-cost, rate-sensitive funding, but it managed to grow its margin in the first quarter. So it looks to be navigating the difficult environment well.
