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Banking Consolidation: 3 Stocks to Buy Following Key Acquisitions
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Earlier in 2023, several members of the Regional Banking ETF ((KRE - Free Report) ) and other larger banks failed, most notably First Republic Bank and Silicon Valley Bank. Though the banking industry is famously cutthroat, and a handful of banks go bankrupt each year, 2023’s banking crisis brought the industry to the brink of contagion. After all, First Republic’s collapse marked the second-largest bank failure in US history. Behind the banking collapses was laissez-faire attitude toward interest-rate focused risk management. With the US Federal Reserve keeping interest rates near-zero for more than a decade, banks like First Republic and Silicon Valley failed to prepare a drastic change to a more “Hawkish” Federal Reserve intent on bringing down inflation (Which had hit 40-year highs late in 2022).
From an interest rate perspective, the worst is behind us. Rates are not only expected not to rise; but the CME FedWatch Tool predicts that rates will actually ease by May of 2024.
Image Source: Chicago Mercantile Exchange
After months of bearish price action, banking stocks finally show signs of life. Last week, the SPDR S&P Bank ETF ((KBE - Free Report) ) scored its largest weekly gain (+10.90%) since 2020 and is attempting to clear its 200-day moving average above.
Image Source: TradingView
3 Banking Stocks to Buy Following Key Acquisitions
During a crisis of any kind, the companies that are best managed, capitalized, and prepared benefit most once the smoke clears. With iconic CEO Jamie Dimon at the helm, JP Morganinvestors have little to worry about. JP Morgan benefitted from the banking crisis in two significant ways:
Blistering Deposit Growth
Fears of an old-fashioned banking run spurred investors to switch from obscure, riskier banks to larger, well-established banks like JPM. Last year, JPM amassed $96 billion in deposits, making the bank the fastest-growing bank in terms of deposits.
Image Source: JP Morgan
First Republic Acquisition
As First Republic Bank collapsed, customers of the bank and the FDIC panicked. However, JPM saw opportunity. With assistance from the FDIC, JPM was able to acquire many of First Republic’s assets for pennies on the dollar. For example, the acquisition boosted assets under management (AUM) at JPM’s wealth management division by 10%.
Growth at a Reasonable Price
Over the past two quarters, JPM achieved EPS growth of more than 50% year-over-year. However, JPM is remains reasonable from a valuation perspective. Its p/e ratio of 8.74x is well below the S&P 500’s 20.55x.
Though less known than JP Morgan, First Citizen’s Bank is another best-in-breed banking stock. FCNCA provides a wide range of banking services, including savings and checking accounts, personal and business loans, mortgages, and credit cards.
SVB “Fire Sale” is a Game-Changer
Like JPM, FCNCA benefits from management’s interest rate foresight and a sparkling balance sheet. In the heat of the banking crisis, FCNCA purchased roughly $72 billion in Silicon Valley Bank assets at a discount of $16.5 billion. The acquisition seems to be paying off – FCNCA’s net income has increased ten-fold in 2023.
Image Source: Zacks Investment Research
Relative Strength Monster
FCNCA has dramatically outperformed the S&P 500 despite the banking crisis and the volatility of the past two years. Year-to-date, the stock is up 87%, while the S&P is only up 14.5%. If the stock can perform this well while banks are getting crushed, it should perform even better when the banking sector turns.
UBS Group is a Swiss multinational investment bank and financial services company. Like the US, several European banks suffered from the banking crisis, including banking giant Credit Suisse.
Credit Suisse Acquisition
In March of 2023, UBS agreed to buy Credit Suisse for $3.2 billion (with ~$104 billion in support from the Swiss government). The acquisition is expected to enhance capabilities in wealth and asset management and spur growth in its capital-light businesses.
Immediate Impact
The scale of the CS acquisition cannot be understated. Last quarter, UBS earned $8.99 a share, up from $0.32 the previous quarter.
Image Source: Zacks Investment Research
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Banking Consolidation: 3 Stocks to Buy Following Key Acquisitions
Earlier in 2023, several members of the Regional Banking ETF ((KRE - Free Report) ) and other larger banks failed, most notably First Republic Bank and Silicon Valley Bank. Though the banking industry is famously cutthroat, and a handful of banks go bankrupt each year, 2023’s banking crisis brought the industry to the brink of contagion. After all, First Republic’s collapse marked the second-largest bank failure in US history. Behind the banking collapses was laissez-faire attitude toward interest-rate focused risk management. With the US Federal Reserve keeping interest rates near-zero for more than a decade, banks like First Republic and Silicon Valley failed to prepare a drastic change to a more “Hawkish” Federal Reserve intent on bringing down inflation (Which had hit 40-year highs late in 2022).
From an interest rate perspective, the worst is behind us. Rates are not only expected not to rise; but the CME FedWatch Tool predicts that rates will actually ease by May of 2024.
Image Source: Chicago Mercantile Exchange
After months of bearish price action, banking stocks finally show signs of life. Last week, the SPDR S&P Bank ETF ((KBE - Free Report) ) scored its largest weekly gain (+10.90%) since 2020 and is attempting to clear its 200-day moving average above.
Image Source: TradingView
3 Banking Stocks to Buy Following Key Acquisitions
JP Morgan ((JPM - Free Report) )
During a crisis of any kind, the companies that are best managed, capitalized, and prepared benefit most once the smoke clears. With iconic CEO Jamie Dimon at the helm, JP Morganinvestors have little to worry about. JP Morgan benefitted from the banking crisis in two significant ways:
Blistering Deposit Growth
Fears of an old-fashioned banking run spurred investors to switch from obscure, riskier banks to larger, well-established banks like JPM. Last year, JPM amassed $96 billion in deposits, making the bank the fastest-growing bank in terms of deposits.
Image Source: JP Morgan
First Republic Acquisition
As First Republic Bank collapsed, customers of the bank and the FDIC panicked. However, JPM saw opportunity. With assistance from the FDIC, JPM was able to acquire many of First Republic’s assets for pennies on the dollar. For example, the acquisition boosted assets under management (AUM) at JPM’s wealth management division by 10%.
Growth at a Reasonable Price
Over the past two quarters, JPM achieved EPS growth of more than 50% year-over-year. However, JPM is remains reasonable from a valuation perspective. Its p/e ratio of 8.74x is well below the S&P 500’s 20.55x.
Image Source: Zacks Investment Research
First Citizen’s Bank ((FCNCA - Free Report) )
Though less known than JP Morgan, First Citizen’s Bank is another best-in-breed banking stock. FCNCA provides a wide range of banking services, including savings and checking accounts, personal and business loans, mortgages, and credit cards.
SVB “Fire Sale” is a Game-Changer
Like JPM, FCNCA benefits from management’s interest rate foresight and a sparkling balance sheet. In the heat of the banking crisis, FCNCA purchased roughly $72 billion in Silicon Valley Bank assets at a discount of $16.5 billion. The acquisition seems to be paying off – FCNCA’s net income has increased ten-fold in 2023.
Image Source: Zacks Investment Research
Relative Strength Monster
FCNCA has dramatically outperformed the S&P 500 despite the banking crisis and the volatility of the past two years. Year-to-date, the stock is up 87%, while the S&P is only up 14.5%. If the stock can perform this well while banks are getting crushed, it should perform even better when the banking sector turns.
Image Source: Zacks Investment Research
UBS Group ((UBS - Free Report) )
UBS Group is a Swiss multinational investment bank and financial services company. Like the US, several European banks suffered from the banking crisis, including banking giant Credit Suisse.
Credit Suisse Acquisition
In March of 2023, UBS agreed to buy Credit Suisse for $3.2 billion (with ~$104 billion in support from the Swiss government). The acquisition is expected to enhance capabilities in wealth and asset management and spur growth in its capital-light businesses.
Immediate Impact
The scale of the CS acquisition cannot be understated. Last quarter, UBS earned $8.99 a share, up from $0.32 the previous quarter.
Image Source: Zacks Investment Research