Make Your Own Bank Run On These Blue-Chip Yields
Is it time for us contrarians to “buy the dip” in bank stocks?
We’re drowning in big bank-scare headlines. Silicon Valley Bank (SIVB
The next bank run, however, won’t be with the big boys. Too big to fail, baby. Here, we’ll find not only government help but also secure yields of up to 5.1%—trading at a discount, no less.
Why the big guys? Well let me show you. Last week, my software firm received this email from one of our vendors:
“Brett, Just wanted to give you our new banking details. We’re out of SVB; we’re moving to JPM.”
JPM for the win. And they’re not the only big bank benefiting.
CNN recently reported that Bank of America
Citigroup was speeding along account openings, CNN adds. BofA? Bloomberg says it hoovered up more than $15 billion in deposits in a matter of days.
The Federal Reserve has rushed in to limit regionals’ bleeding. But while this isn’t 2008, there are many losers in the banking industry—and a few winners at their expense!
The nation’s largest banks don’t have the “client concentration” problem (all tech bros) that sank SVB. Big bank depositor bases are far more diverse, as are their assets.
JPMorgan Chase (JPM, 3.1% yield), new home to many SVB refugees, was America’s largest bank at the end of 2022, with $3.2 trillion in global assets. It’s such a sturdy name in the banking sector that it’s on the other end of the bailout spectrum, helping another troubled bank stay afloat. JPM was among 11 large banks that recently pledged to deposit $30 billion into troubled First Republic Bank (FRC), and CNBC reported that JPM is actually advising FRC on strategic alternatives including a capital raise or outright sale.
JPM has a fortress balance sheet, is soundly profitable and highly liquid, with $540 billion sitting in deposits with central banks. The recent run on bank stocks has done nothing but make JPM a little more attractive—the stock’s 1.4 price-to-book ratio and 3.2% dividend yield still aren’t screaming “buy!” to me. But it’s certainly safe, as is a dividend that accounts for just 33% of the bank’s profits.
Citigroup (C, 4.5% yield) boasts a safe dividend, with a scant 29% payout ratio—and it trades at just half its book value. At $1.8 trillion in assets, it’s firmly fixed among America’s “Big Four,” and it’s also part of the FRC bailout.
But profits are lower quality here. Operating expenses continue to plague the company and helped induce a fourth-quarter earnings miss. Citigroup’s consumer banking division is also downsizing in Asia and emerging markets, narrowing an international opportunity. So while C shares certainly appear safe from a dividend perspective, it’s hardly the cream of the big-bank crop.
Bank of New York Mellon
Prior to the SVB brouhaha, Bank of New York Mellon was guiding for net interest income (NII) growth of 20% this year and was working on containing costs. It’s firmly facing the right direction—and trading at a slight 5% discount to book at present.
The real pain has been felt at regional banks. SVB, Signature Bank, and First Republic are all considered to be in the regional set, after all, and perception matters—if those banks could fail, another regional could be next. This fear hasn’t sparked full-on bank runs, but it has caused some depositors to pull money from local institutions and sink it into the big boys.
But “regional bank” is an overly broad term extended to banks huge and tiny—from tens of billions of dollars in market cap to a few hundred million. And some of the much larger regionals might be taking more damage than they deserve.
USB shares have been cut by more than 20% in the regional-bank rout, driving shares to a much more reasonable valuation of about 1.1 times book. That doesn’t sound great, but U.S. Bancorp shares have long traded at a premium—this recent stumble has brought prices back to pandemic-era levels.
USB has long been a high-quality bank that, if anything, is likelier to enjoy an influx of deposits coming from smaller regionals than it is to lose deposits to mega-banks. Its dividend accounts for a hair more than half of its profits, so it’s possible tighter capital requirements could shave it down. But even with a theoretical 20% haircut, USB’s payout would still deliver a respectable yield north of 4%.
PNC Financial Services
But a tightening of stress tests could be problematic for PNC. While plugging away at research, I came across a KBW note examining possible stress-test tweaks. PNC was among the regionals that produced “challenging results.” Translation: If the Fed does clamp down, it might have to pull back on loan growth to improve its liquidity and capital position.
Brett Owens is chief investment strategist for Contrarian Outlook. For more great income ideas, get your free copy his latest special report: Your Early Retirement Portfolio: Huge Dividends—Every Month—Forever.
Source: Fox Business
Sunak bid to keep Johnson WhatsApps secret is likely to fail, minister admits – live
New Florida law aims to hold insurers 'feet to the fire' as hurricane season begins
Instagram’s Head Says You Shouldn’t Worry About Shadowbanning
Britain’s Got Talent is embroiled in a ‘copycat’ row after magic act
JPMorgan raises 2024 economic outlook for India, but remains cautious of global headwinds
Lotus Type 133 Electric Sedan Spied Coming In Hot At The Nurburgring
Hummus-Crusted Chicken With Turmeric Rice Recipe
Forza Horizon 5 And Gran Turismo 7 Get New Cars, Photo Mode Updates
Fluffy Flax Pancakes Recipe | SELF
Global policy leaders gather to share changing perspectives
Another UN Myanmar envoy bites the dust
In turbulent Indo-Pacific, Quad must hold firm – and act fast
Patriots are reportedly still in the DeAndre Hopkins sweepstakes
Tom Brady talks about returning to Foxborough, his current relationship with Bill Belichick
Busby Family Returns to TLC as ‘OutDaughtered’ Season 9 Sets July 2023 Premiere Date
Lifestyle17 hours ago
Tom Brady Spotted on Star-Studded Yacht With Leonardo DiCaprio
Lifestyle18 hours ago
Malaysia’s FINAS Drops CEO Nasir Ibrahim – Global Bulletin
Tech19 hours ago
The “death of self-driving cars” has been greatly exaggerated
Travel17 hours ago
Air France-KLM adds Amadeus Cytric portfolio to corporate offering
News17 hours ago
Are Sane Republicans Making a Comeback?
Auto21 hours ago
2025 Ferrari Hypercar Test Mule Spied Looking Strange
Auto19 hours ago
Audi RSQ8 Gets Power Boost And Brutal Aero Pack From Mansory
Travel21 hours ago
Qatar Airways Signs Deal with Shell for Sustainable Aviation Fuel Supply at Schiphol Airport