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‘Sifting Through the Rubble’
In the wake of spring’s bank failures, the Too Big to Fail banks were perceived as a safe haven by depositors and investors.
But six months later, a Piper Sandler & Co. survey of 73 bank investors finds that more prefer small bank stocks (42%) to those of medium sized (36%) and large (22%) banks.
Investors likely sense an opportunity here — almost three-quarters believe that bank stocks are generally undervalued. Liquidity concerns have faded, and investors have noticed a significant “valuation disparity” between the prices of large and small banks, says Mark Fitzgibbon, managing director and head of financial services research at Piper Sandler.
Stockholders still value smart growth. While bank acquisitions have been few and far between these days, some acquirers saw their stock prices rise dramatically following recent deals to purchase failed or troubled banks. That includes New York Community Bancorp, which acquired Signature Bank, and Customers Bancorp, which purchased Signature’s $631 million venture banking loan portfolio from the Federal Deposit Insurance Corp. First Citizens BancShares, which bought Silicon Valley Bank, also saw a significant lift in its price.
Piper Sandler’s survey also finds investors vastly favoring banks in the southeastern and southwestern U.S. — likely in response to demographic shifts as more Americans move to those areas. “Investors, I think, feel like the growth potential is greater there,” says Fitzgibbon.
Investors, however, are digging deeper into specific banks, rather than simply betting on the sector. He calls it a “stock pickers’ market” that favors companies positioned to thrive in a higher rate environment where future credit quality remains uncertain.
“People are really digging into the fundamentals much more than they frankly normally do,” says Fitzgibbon, “to try to identify those attractive names.”
That means banks with flexible balance sheets and improving net interest margins — as well as high capital levels — could create opportunities in a downturn, enabling M&A and organic loan growth. Bank Director’s 2023 RankingBanking study, published in August, further explored investor sentiment and balance sheet management.
“[S]o far this year, the bigger banks have dramatically outperformed the little guys,” Fitzgibbon says. That has investors “sifting through the rubble” to find the best performers.
• Emily McCormick, vice president of editorial & research for Bank Director
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