What is keeping bank share prices down?
Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by Reuters in an article—by Chibuike Oguh, “PacWest gains ground in choppy trading for U.S. regional banks”—regarding what is pulling down the share prices of regional banks.
Even though Silicon Valley Bank, Signature Bank, and First Republic have sadly disappeared, the issues they faced have not gone away for several other banks: long-term bond holdings are still underwater and depositors remain concerned.
Either the Federal Deposit Insurance Corp (FDIC) and National Credit Union Administration (NCUA) need to raise deposit insurance to protect more people and small businesses or interest rates need to decline to raise the value of bonds held by banks. The Fed will probably not directly lower interest rates any time soon but may cause a decline if it pushes the economy into recession. However, recession would probably be a double edged sword for regional banks. It would likely cause a flight to quality amongst investors that would cause bond yields to decline and bond prices to increase, which would help increase the value of bond holdings at banks, but would conversely hurt the loan side of banks as delinquencies and defaults would probably increase.
Quoted article excerpt is below:
“The FDIC needs to raise its [deposit] limits because that’s what will instill confidence in people and stop them from moving their money to larger banks,” said Michael Ashley Schulman, chief investment officer at Running Point Capital in California. “Otherwise smaller banks will be destroyed.”
Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Past performance is not indicative of future results. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-23-50