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.
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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.
Its Commercial Banking segment offers credit intermediation, cash management and financial services; lending and depository products; and cash management, foreign exchange and international trade finance, derivatives and capital markets services, asset-based lending, real estate finance, public finance, commercial leasing and syndicated finance for business, government and professional customers.
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The Consumer and Small Banking segment provides a range of deposit and loan products to individuals and small businesses; home equity loans and lines of credit; credit cards; and cash management services. This segment also engages in the residential mortgage business, including origination, retention and servicing of residential mortgage loans, sales and securitizations of loans and hedging activities; indirect lending, including extending loans to consumers through automobile dealers, motorcycle dealers, powersport dealers, recreational vehicle dealers and marine dealers; and home improvement and solar energy installation loans through contractors and installers.
The Wealth & Asset Management segment provides various wealth management services for individuals, companies and not-for-profit organizations. It offers retail brokerage services to individual clients and broker dealer services to the institutional marketplace. This segment also provides wealth planning, investment management, banking, insurance and trust and estate services, as well as advisory services for institutional clients comprising middle market businesses, nonprofits, states and municipalities.
Investors receive a 5.03% dividend. The Goldman Sachs price target is $40, and Fifth Third Bancorp stock has a $39.20 consensus target. The stock closed almost 3% higher on Wednesday at $27.03.
Huntington Bancshares
This smaller cap bank could be an outstanding addition for investors who are more aggressive. Huntington Bancshares Inc. (NASDAQ: HBAN) operates as a holding company for the Huntington National Bank, which provides commercial, small business, consumer and mortgage banking services.
Its Retail and Business Banking segment offers financial products and services, including checking accounts, savings accounts, money market accounts, certificates of deposit, consumer loans and small business loans, as well as investments, insurance, interest rate risk protection and foreign exchange and treasury management services.
The Commercial Banking segment provides corporate risk management and institutional sales, trading, and underwriting services; commercial property and casualty, employee benefits, personal lines, life and disability, and specialty lines of insurance; and brokerage and agency services for residential and commercial title insurance, as well as excess and surplus product lines of insurance. Huntington also offers automotive and commercial real estate financing and a regional private bank and private client business.
Huntington Bancshares stock comes with a 5.58% dividend. The $17 Goldman Sachs target price tops the $15.98 consensus target and Wednesday’s close at $11.34, which was up close to 2% on the day.
KeyCorp
Shares of this top regional player are quite cheap at current levels for investors looking at financials. KeyCorp (NYSE: KEY) operates as the bank holding company for KeyBank National Association, which provides deposit, lending, cash management and investment services to individuals, small and medium-sized businesses.
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KeyCorp also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets banner.
The dividend yield here is 6.63%. Goldman Sachs has set its price target at $20.50. The consensus target is $20.18, and KeyCorp stock closed 2.4% higher on Wednesday at $12.67.
Regions Financial
This stock does a ton of business in the fast-growing southern and southeastern parts of the country. Regions Financial Corp. (NYSE: RF) provides banking and bank-related services to individual and corporate customers. It operates through three segments.
The Corporate Bank segment offers commercial banking services, such as commercial and industrial, commercial real estate and investor real estate lending; equipment lease financing; deposit products; and securities underwriting and placement, loan syndication and placement, foreign exchange, derivatives, merger and acquisition, and other advisory services. It serves corporate, middle market and commercial real estate developers and investors.
The Consumer Bank segment provides consumer banking products and services related to residential first mortgages, home equity lines and loans, branch small business and indirect loans, consumer credit cards and other consumer loans, as well as deposits.
The Wealth Management segment offers credit-related products and retirement and savings solutions, as well as trust and investment management, asset management and estate planning services to individuals, businesses, governmental institutions and nonprofit entities. It also provides investment and insurance products, low-income housing tax credit corporate fund syndication services and other specialty financing services.
Investors receive a 4.38% dividend. Regions Financial stock has a $27 price target at Goldman Sachs. The consensus target is $25.07. Wednesday’s close was at $18.66.
Truist Financial
This company was created through a merger of SunTrust Bank and BB&T in 2019. Truist Financial Corp. (NYSE: TFC) provides banking and trust services in the southeastern and mid-Atlantic United States. Its deposit products include non-interest-bearing checking, interest-bearing checking, savings and money market deposit accounts, as well as certificates of deposit and individual retirement accounts.
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The company also provides funding; asset management; automobile lending; bankcard lending; consumer finance; home equity and mortgage lending; insurance, such as property and casualty, life, health, employee benefits, workers compensation and professional liability, surety coverage, title, and other insurance products; investment brokerage; mobile/online banking; and payment, lease financing, small business lending, and wealth management/private banking services.
In addition, Truist offers association, capital market, institutional trust, insurance premium and commercial finance, international banking, leasing, merchant, commercial deposit and treasury, government finance, commercial middle market lending, small business and student lending, floor plan and commercial mortgage lending, mortgage warehouse lending, private equity investment, real estate lending and supply chain financing services. It provides corporate and investment banking, retail and wholesale brokerage, securities underwriting and investment advisory services.
Shareholders receive a huge 6.39% dividend. The Goldman Sachs price target is $55, and the consensus target is $51.85. Truist Financial stock closed up over 3% on Wednesday at $34.47.
While it is possible some of these banks have to trim their dividends, since they exploded so high due to panic selling, even with a cut they still will be well above most companies. With earnings for the quarter coming in April, it may make sense to scale-buy shares over the next month to six weeks to not only see how they perform but to hear the commentary from bank executives on the path forward.
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