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Banking Consolidation: 3 Stocks to Buy Following Key Acquisitions
Earlier in 2023, several members of the Regional Banking ETF and other larger banks failed, most notably First Republic Bank and Silicon Valley Bank. Though the banking industry is famously cutthroat, and a handful of banks go bankrupt each year, 2023's banking crisis brought the industry to the brink of contagion. After all, First Republic's collapse marked the second-largest bank failure in US history.
Behind the banking collapses was a laissez-faire attitude toward interest-rate focused risk management. With the US Federal Reserve keeping interest rates near-zero for more than a decade, banks like First Republic and Silicon Valley failed to prepare a drastic change to a more "Hawkish" Federal Reserve intent on bringing down inflation (Which had hit 40-year highs late in 2022).
From an interest rate perspective, the worst is behind us. Rates are not only expected not to rise; but the CME FedWatch Tool predicts that rates will actually ease by May of 2024.
After months of bearish price action, banking stocks finally show signs of life. Last week, the SPDR S&P Bank ETF scored its largest weekly gain (+10.90%) since 2020 and is attempting to clear its 200-day moving average above.
3 Banking Stocks to Buy Following Key Acquisitions
JP Morgan
During a crisis of any kind, the companies that are best managed, capitalized, and prepared benefit most once the smoke clears. With iconic CEO Jamie Dimon at the helm, JP Morgan Investors have little to worry about. JP Morgan benefitted from the banking crisis in two significant ways:
Blistering Deposit Growth
Fears of an old-fashioned banking run spurred investors to switch from obscure, riskier banks to larger, well-established banks like JPM. Last year, JPM amassed $96 billion in deposits, making the bank the fastest-growing bank in terms of deposits.
First Republic Acquisition
As First Republic Bank collapsed, customers of the bank and the FDIC panicked. However, JPM saw an opportunity. With assistance from the FDIC, JPM was able to acquire many of First Republic's assets for pennies on the dollar. For example, the acquisition boosted assets under management (AUM) at JPM's wealth management division by 10%.
Growth at a Reasonable Price
Over the past two quarters, JPM achieved EPS growth of more than 50% year-over-year. However, JPM remains reasonable from a valuation perspective. Its p/e ratio of 8.74x is well below the S&P 500's 20.55x.
First Citizen's Bank
Though less known than JP Morgan, First Citizen's Bank is another best-in-breed banking stock. FCNCA provides a wide range of banking services, including savings and checking accounts, personal and business loans, mortgages, and credit cards.
SVB "Fire Sale" is a Game-Changer
Like JPM, FCNCA benefits from management's interest rate foresight and a sparkling balance sheet. In the heat of the banking crisis, FCNCA purchased roughly $72 billion in Silicon Valley Bank assets at a discount of $16.5 billion. The acquisition seems to be paying off – FCNCA's net income has increased ten-fold in 2023.
Relative Strength Monster
FCNCA has dramatically outperformed the S&P 500 despite the banking crisis and the volatility of the past two years. Year-to-date, the stock is up 87%, while the S&P is only up 14.5%. If the stock can perform this well while banks are getting crushed, it should perform even better when the banking sector turns.
UBS Group
UBS Group is a Swiss multinational investment bank and financial services company. Like the US, several European banks suffered from the banking crisis, including banking giant Credit Suisse.
Credit Suisse Acquisition
In March of 2023, UBS agreed to buy Credit Suisse for $3.2 billion (with ~$104 billion in support from the Swiss government). The acquisition is expected to enhance capabilities in wealth and asset management and spur growth in its capital-light businesses.
Immediate Impact
The scale of the CS acquisition cannot be understated. Last quarter, UBS earned $8.99 a share, up from $0.32 the previous quarter.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Investment Ideas feature highlights: KRE, KBE, JP Morgan, First Citizen's Bank and UBS
For Immediate Release
Chicago, IL – November 8, 2023 – Today, Zacks Investment Ideas feature highlights Regional Banking ETF (KRE - Free Report) , SPDR S&P Bank ETF (KBE - Free Report) , JP Morgan (JPM - Free Report) , First Citizen's Bank (FCNCA - Free Report) and UBS Group (UBS - Free Report) .
Banking Consolidation: 3 Stocks to Buy Following Key Acquisitions
Earlier in 2023, several members of the Regional Banking ETF and other larger banks failed, most notably First Republic Bank and Silicon Valley Bank. Though the banking industry is famously cutthroat, and a handful of banks go bankrupt each year, 2023's banking crisis brought the industry to the brink of contagion. After all, First Republic's collapse marked the second-largest bank failure in US history.
Behind the banking collapses was a laissez-faire attitude toward interest-rate focused risk management. With the US Federal Reserve keeping interest rates near-zero for more than a decade, banks like First Republic and Silicon Valley failed to prepare a drastic change to a more "Hawkish" Federal Reserve intent on bringing down inflation (Which had hit 40-year highs late in 2022).
From an interest rate perspective, the worst is behind us. Rates are not only expected not to rise; but the CME FedWatch Tool predicts that rates will actually ease by May of 2024.
After months of bearish price action, banking stocks finally show signs of life. Last week, the SPDR S&P Bank ETF scored its largest weekly gain (+10.90%) since 2020 and is attempting to clear its 200-day moving average above.
3 Banking Stocks to Buy Following Key Acquisitions
JP Morgan
During a crisis of any kind, the companies that are best managed, capitalized, and prepared benefit most once the smoke clears. With iconic CEO Jamie Dimon at the helm, JP Morgan Investors have little to worry about. JP Morgan benefitted from the banking crisis in two significant ways:
Blistering Deposit Growth
Fears of an old-fashioned banking run spurred investors to switch from obscure, riskier banks to larger, well-established banks like JPM. Last year, JPM amassed $96 billion in deposits, making the bank the fastest-growing bank in terms of deposits.
First Republic Acquisition
As First Republic Bank collapsed, customers of the bank and the FDIC panicked. However, JPM saw an opportunity. With assistance from the FDIC, JPM was able to acquire many of First Republic's assets for pennies on the dollar. For example, the acquisition boosted assets under management (AUM) at JPM's wealth management division by 10%.
Growth at a Reasonable Price
Over the past two quarters, JPM achieved EPS growth of more than 50% year-over-year. However, JPM remains reasonable from a valuation perspective. Its p/e ratio of 8.74x is well below the S&P 500's 20.55x.
First Citizen's Bank
Though less known than JP Morgan, First Citizen's Bank is another best-in-breed banking stock. FCNCA provides a wide range of banking services, including savings and checking accounts, personal and business loans, mortgages, and credit cards.
SVB "Fire Sale" is a Game-Changer
Like JPM, FCNCA benefits from management's interest rate foresight and a sparkling balance sheet. In the heat of the banking crisis, FCNCA purchased roughly $72 billion in Silicon Valley Bank assets at a discount of $16.5 billion. The acquisition seems to be paying off – FCNCA's net income has increased ten-fold in 2023.
Relative Strength Monster
FCNCA has dramatically outperformed the S&P 500 despite the banking crisis and the volatility of the past two years. Year-to-date, the stock is up 87%, while the S&P is only up 14.5%. If the stock can perform this well while banks are getting crushed, it should perform even better when the banking sector turns.
UBS Group
UBS Group is a Swiss multinational investment bank and financial services company. Like the US, several European banks suffered from the banking crisis, including banking giant Credit Suisse.
Credit Suisse Acquisition
In March of 2023, UBS agreed to buy Credit Suisse for $3.2 billion (with ~$104 billion in support from the Swiss government). The acquisition is expected to enhance capabilities in wealth and asset management and spur growth in its capital-light businesses.
Immediate Impact
The scale of the CS acquisition cannot be understated. Last quarter, UBS earned $8.99 a share, up from $0.32 the previous quarter.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.