Regional banks are on a slow recovery from the banking turmoil experienced in early 2023. Yahoo Finance Live's Myles Udland and Seana Smith review the environment for financial stocks and how it may not be all "doom and gloom" for regional banks based on earnings performances.
Video Transcript
SEANA SMITH: And there were certainly a lot of, I guess, worry going into this week at exactly what the banks were going to tell us. And when you compare maybe the results from JP Morgan to the results of Goldman Sachs, obviously, a very different picture, not exactly surprising, something that we did expect going into this earnings season.
But when you take into account some of the other banks that we also heard from because regionals and almost seemed like investor sentiment there was it's OK. It's better than expected. Deposit levels look like they have stabilized just a bit. And the market at least right now looking at that as a win.
MYLES UDLAND: Yeah. And I know we can take a look at a couple of different regionals. Western Alliance was one of those names that all of a sudden everybody knew that stock. I think we have Western, Zions Bancorp, and KeyBank on this chart. And you look all these names over the last month, up at least 15%. Western Alliance up quite a bit more than that. All of these names higher on the week by more than, I think it's more than 10%. Can't quite make that out there.
But we have seen these names move higher on their earnings. And it is funny looking at both the reaction in these stocks and the way that these management teams talked on the call to think that it was only, what, 3 and 1/2 months ago that we were, like, maybe there's another banking crisis. Who could really-- how many more banks will fail.
And Western Alliance was certainly one of those names that there was a lot of concern about in the market, the viability of the bank at all. And now you kind of get on the other side of that. I mean, you remember folks coming on the show almost every day saying, there might be a big opportunity here. And, well, here's the opportunity, I guess. You had to really have to hold your nose. But, you know, this is now turning into the kind of story that I think when you x out the unique issues that SVB and others, you can talk yourself into.
SEANA SMITH: Yeah. No glaring credit issues. It seems like at least that is obviously good news here or enough, I should say, obviously. It's good news. But enough here for investors at least at this point. But they're not out of the woods yet when it comes to the fact that they are being forced to pay more in order to keep those deposits there at a massive disadvantage when you compare many of those regional banks to the current position of those larger banks. And the fact that environment might not change anytime.
MYLES UDLAND: Looking at that year to date chart on those names, I think it is fair to say that the old-- because the old story with regional banks is basically, well, if rates go up, it's good because these are more deposit-heavy banks, therefore, they can make more money on the spread, the net interest income, right? And with there not being competition for deposits, the idea is that, well, you can just turn the higher, you know, rate that you can get on a Treasury or whatever and move that right to your bottom line.
So I think to some extent, investors may be sleepwalked into this year with this story specifically. And yes, now there is quite a bit of work to do to rightsize that, let's say. But ultimately, you are probably not going to see-- it seems at this point. Look, famous last words, don't clip this. Probably not going to see like 10 more banks fail before the end of this year.
SEANA SMITH: I hope you're right.
MYLES UDLAND: It feels like that, right?
SEANA SMITH: That seems like a pretty safe.
MYLES UDLAND: It feels like there will probably be fewer than 10 banks in the US fail for the balance of 2023. That's my big prediction.
SEANA SMITH: I'm going to side with you on that one. I think it's fair.
