The Zacks Analyst Blog features Bank of New York Mellon, Northeast Community Bancorp and SB Financial Group
For Immediate Release
Chicago, IL – March 16, 2023 – Zacks.com announces the list of stocks featured in the analyst blog. Every day, Zacks Equity Research analysts discuss the latest news and events affecting stocks and the financial markets. Stocks recently featured on the blog include: The Bank of New York Mellon BK, Northeast Community Bancorp NECB, and SB Financial Group SBFG.
Here are the highlights from Wednesday’s analyst blog:
Ignore the SVB fiasco, these 3 banks are strong
The stability of the US banking system was questioned after the collapse of the Silicon Valley bank last week. The fate of the 16th largest bank was doomed after accumulating deposits thwarted lenders’ drive for fresh capital.
Now regulators stepped in to prevent contagion to other regional banks. So is it the right time to invest in banking stocks that are now facing bouts of volatility? Let’s see in detail –
What led to the failure of Silicon Valley Bank?
Since its inception, Silicon Valley Bank has become a lender to tech startups, whose businesses were considered riskier by big banks. Over the years, the bank has done business with big tech companies like Pinterest, Shopify, and Fitbit, to name a few. And especially during the coronavirus pandemic that led to the boom in the tech sector, deposits at the bank surged.
The Silicon Valley Bank invested the cash received from such deposits in long-term government bonds, which were viewed as a safe haven investment. Unfortunately, the value of such securities has fallen sharply recently after the Federal Reserve began aggressively raising interest rates to curb stubbornly high inflation. At the same time, tech companies were struggling to raise money, forcing them to withdraw funds from their deposits in Silicon Valley Bank accounts.
However, like all banks, Silicon Valley Bank is required to hold a minimum cash balance. So, to maintain such reserves, the bank had to sell some of its bonds. But the value of such bonds on the market was worth much less because the new bonds had higher interest rates. As a result, the bank suffered huge losses selling its bonds, spreading panic among its customers, who were mostly companies rather than individuals.
Not only did customers rush to get money from the bank, but venture capitalists also began withdrawing their funds. The SVB Finance Group (SIVB), whose main subsidiary is Silicon Valley Bank, has seen its share price fall 53.9% this year versus the Zacks Banks – the western industry down 42.3%.
The government steps in to prevent broader financial contagion
Unlike Lehman Brothers, Silicon Valley Bank is not connected to the rest of the financial system through a network of credit derivatives. The possibility of more depositors pulling money out of their banks because they might face the same kind of stress as Silicon Valley Bank gave the Biden administration nightmares.
Finally, Silicon Valley Bank’s issues spilled over signature bank (SBNY), whose own depositors requested large withdrawals. Signature Bank shares are down 39.2% year to date.
The government said all Silicon Valley Bank customers, insured or uninsured, will have access to their deposits. The FDIC’s deposit insurance fund is used to cover all depositor accounts, rather than the standard $250,000 insured individual accounts. This secured all depositors at Silicon Valley Bank and boosted confidence in the US banking system.
In addition, regulators took control of Signature Bank, and both the Fed and Treasury said they would allow bailout agencies to allocate more funds to meet demand for bank withdrawals, thereby protecting themselves from a collapse like that of silicon to protect valley bank.
The Fed also pledged that it would make more funds available to banks in emergencies through the new Bank Term Funding Program. Under the program, banks pledging mortgage-backed securities receive loans for up to one year.
Is it wise to invest in bank stocks now?
As regulators have increased their efforts to protect customer deposits and banks remain well-positioned to access emergency funding, there is no risk of contagion. President Biden, meanwhile, has pledged to strengthen the regulatory system to quell future crises in the banking system.
This requires investing in banks that are fundamentally strong and well capitalized. Overall, investor sentiment towards the broader banking system could remain weak for now due to the unprecedented event. In the long run, however, the banks will win. A sharp drop in bank stocks also provides an opportunity to buy undervalued companies.
3 solid choices
We have therefore selected three bank stocks The Bank of New York Mellon, Northeast Community Bancorp And SB Finance Group. These stocks have a price-to-book (P/BV) ratio of less than 1, indicating the stock is undervalued.
They have a debt to equity (D/E) ratio of less than 1, indicating the company is solvent, or in other words, has sufficient cash inflows to meet debt obligations. These stocks also have a Zacks rank of #1 (Strong Buy) or #2 (Buy). You can see the full list of today’s Zacks #1 Rank stocks can be found here.
The Bank of New York Mellon is a financial services company that has been in business since 1784. Its drive to expand into foreign markets, coupled with a restrictive domestic interest rate environment, will certainly give the company a boost. BK has a P/BV ratio of 0.99. It has a D/E ratio of 0.86 and a Zacks rank of #2.
Zacks consensus estimate for year-to-date earnings is up 4.3% over the past 60 days. The company’s expected year-to-date earnings growth rate is 5.2%.
Northeast Community Bancorp offers financial services for individuals and companies. It is the holding company of Northeast Community Bank. NECB has a P/BV ratio of 0.90. It has a D/E ratio of 0.08 and a Zacks rank of #1.
Zacks consensus estimate for year-to-date earnings is up 34.6% over the past 60 days. The company’s expected earnings growth rate for the current year is 52.5%.
SB Finance Group is a financial services holding company with two wholly owned operating subsidiaries: State Bank and RDSI Banking Systems. SBFG has a P/BV ratio of 0.85. It has a D/E ratio of 0.67 and a Zacks rank of #2.
Zacks consensus estimate for year-to-date earnings is up 0.6% over the past 60 days. The company’s expected year-to-date earnings growth rate is 8.6%.
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Past performance is no guarantee of future results. The potential for loss is inherent in every investment. This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether an investment is suitable for a is suitable for certain investors. It should not be assumed that investments in any security, company, sector or market identified and described have been or will be profitable. All information is current at the time of publication and is subject to change without notice. Any views or opinions expressed may not reflect those of the company as a whole. Zacks Investment Research does not engage in investment banking, market making or investment management activities for securities. These returns are from hypothetical portfolios composed of Zacks rank = 1 stocks rebalanced monthly excluding transaction costs. These are not actual stock portfolio returns. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information on the performance figures presented in this press release.
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The Bank of New York Mellon Corporation (BK): Free Stock Research Report
SB Financial Group, Inc. (SBFG): Free Stock Research Report
Northeast Community Bancorp Inc. (NECB): Free Stock Research Report
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