When something blows up on Wall Street, traders and investors often sell first and ask questions later. That was exactly what happened when Silicon Valley Bank (SVB) blew up earlier this month. Investors and, of course, short sellers ripped the regional banks apart, assuming that all had the potential for a run on the bank and even worse, the potential for a total failure that already has swallowed up three companies.
The biggest worries are centered around deposit flight to big money center banks, which puts pressure on loan books that each bank has, plus bank investments that are marked way below where banks purchased them. That was one of the biggest issues at SVB, as it was forced to sell Treasury bonds and mortgage-backed securities to cover withdrawal requests and ended up with a massive $1.8 billion loss. Goldman Sachs reportedly was the buyer of the bond portfolio that blew up.
The Goldman Sachs analysts did a deep dive on the regional banks, because clearly many are well run, and do not have the issues SVB had. While acknowledging earnings for most of the banks will face headwinds, six of the banks the analysts cover are rated Buy and hold some huge upside potential for investors with a long-term horizon. The good news is that all six banks pay dividends that have increased as sellers hit the stocks, and they look to be able to maintain them.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Citizens Financial
This top regional stock is bidding for the SVB private banking business. Citizens Financial Group Inc. (NYSE: CFG) operates approximately 2,700 ATMs and 1,000 branches in 11 states in the New England, Mid-Atlantic and Midwest regions, as well as through online, telephone and mobile banking services, and it maintains approximately 130 retail and commercial non-branch offices.
Citizens Financial operates in two segments. The Consumer Banking segment offers traditional banking products and services, including checking and savings accounts, home and education loans, credit cards, business loans, mortgage and home equity lending and unsecured product finance and personal loans, as well as wealth management and investment services to retail customers and small businesses. This segment also provides indirect auto finance for new and used vehicles through auto dealerships.
The Commercial Banking segment offers various financial products and solutions, such as loans and leasing, trade finance, deposit and treasury management, cash management, and foreign exchange and interest rate risk management solutions. It also provides loan syndications, corporate finance, merger and acquisition, and debt and equity capital markets capabilities.
Shareholders receive a 5.47% dividend. Goldman Sachs has a $49 target price on Citizens Financial stock. The consensus target is $46.05, and shares closed on Wednesday at $31.13.
Fifth Third Bancorp
This top super-regional bank stock remains incredibly cheap and is a beneficiary of higher interest rates. Fifth Third Bancorp (NASDAQ: FITB) operates as a diversified financial services company in the United States. It operates through the following three segments.
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