Are bank stocks a good investment right now? Here's what experts say
Turmoil at select U.S. and European banks over the last month has prompted worries about the health of the global financial sector and has driven down bank stocks as spooked investors watched the situation play out.
Despite banking worries, experts told BNN Bloomberg that the period of panic rattling the market contains some promising investment opportunities in bank stocks, particularly with Canadian names.
CANADIAN ADVANTAGE
Equity analyst Steve Boland, managing director of diversified financials at Raymond James, said the meltdowns at Silicon Valley Bank and Signature Bank in the U.S. have highlighted the relative stability of Canadian banks, and investors should take note.
The American banking landscape contains thousands of names for investors to look at, but Canada’s roster of fewer than 81 banks means regulators can keep a more watchful eye on them, Boland said.
“Investors have been looking south because there's lots of choice, but maybe it's time to look at the Canadian industry in general,” Boland told BNNBloomberg.ca in a telephone interview Tuesday.
Boland was one of the authors on a Raymond James report published Tuesday outlining the case for Canadian banks. Those include the tighter relationship with regulators and rules that ensure balance sheets are stronger than in the U.S. and better liquidity ratios.
While a run on deposits like the one that toppled Silicon Valley Bank is still a possibility in Canada, Boland said it seems unlikely right now as media coverage has reassured Canadians about the financial sector’s strength, and banks are reporting that they have not received an influx of worried calls from people seeking to withdraw their money.
Allan Small, senior investment advisor at Allan Small Financial Group, said the Canadian bank stock selloff shouldn’t be a deterrent because it’s happening “for the wrong reasons,” in reaction to a bank crisis in the U.S. he considers unlikely to spread north.
U.S. EXPOSURE
John Zechner, chairman at J. Zechner Associates, agreed that Canadian banks remain generally stable investment choices. But he noted that Canadian banks eyeing expansion into the U.S. are risker options right now.
Those include Bank of Montreal, which closed a $16.3-billion acquisition of Bank of the West this year, and TD Bank, which has offered $13.4 billion to buy First Horizon Corp., another regional bank that’s seen shares tumble to 40 per cent lower than TD’s takeover offer as of this week.
The SVB and Signature Bank crises have cast a pall over U.S. regional banks like Bank of the West and First Horizon, Zechner said. The chaos has raised further doubts about whether TD’s deal will go ahead.
“(BMO and TD) both added regional banking exposure and more of the risk is in the regionals in the U.S.,” Zechner said, adding that the risk to both appears short-term.
SOME U.S. OPPORTUNITIES
Still, some larger U.S. lenders have actually benefited from the chaos at regional banks, experts said.
Zechner said big, U.S. money centre banks have a more diverse, insured deposit base, similar to banks in Canada, and they have benefited from panicked regional bank customers in the U.S. scrambling to move their money elsewhere, making for a more attractive investment.
“So many people just pulled their money from the regionals, they had to put it somewhere and they stick it with these bigger players because they view it as safety,” he said. “That gives them stronger balance sheets.”
Small said he is also viewing the regional banking concerns as an opportune time to buy larger big money centre U.S. bank stocks, because their price has lowered “for reasons that really don't have much to do with their own type of business.”
“Nothing like a nice crisis to bring down the price of some of these good quality names,” Small said Tuesday. “I started adding money to them over the last few days and I will continue to do so as they remain cheap.”
Boland said investors should be careful with U.S. bank investments given the volatility, though he expects there may be “decent returns for the ones that are stable,” and he pointed again to Canada.
“If you don't want the fatigue of worrying about U.S. banks, look north,” he said. “To us, you're getting all those things that may be superior to what's happening in the U.S.”