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Here are Citi's top four regional-bank picks after a 'tremulous year'

By Steve Gelsi

'Regionals remain very attractive,' analyst Ben Gerlinger says

Western Alliance Bancorp, First Horizon Corp., Popular Inc. and Bank OZK drew top marks Tuesday out of the 18 banks covered by Citi analyst Ben Gerlinger.

While stocks of these and other banks have been in rally mode since November, Citi continues to believe that regional banks remain "very attractive" for 2024 and through the first half of 2025 after a "rather tremulous year," Gerlinger said.

Western Alliance (WAL), First Horizon (FHN), Popular Inc. (BPOP) and Bank OZK (OZK) are currently well positioned for upside through the coming fourth-quarter earnings season, Gerlinger said.

First Horizon reports its results on Jan. 18, followed by Popular on Jan. 23. Western Alliance and Bank OZK both report earnings on Jan. 24.

The four banks currently enjoy high capital levels that provide them with the option to repurchase shares, increase their growth path or do both, he said.

Although the KBW Nasdaq Bank Index BKX has risen nearly 15% in the past month, it remains down 5% for the year.

The SPDR S&P Regional Banking ETF KRE is up 16.5% in the past month, but remains in negative territory for the year by 10.3%.

Bank stocks have been impacted by the collapse of three former S&P 500 SPX components from the banking sector this year: Silicon Valley Bank, Signature Bank and First Republic Bank.

From the archives (May 2023): Senators grill SVB, Signature Bank CEOs for putting profits ahead of shareholders and depositors in collapse

Rapid interest-rate hikes by the Federal Reserve also bit into net interest income, which is the profit banks make on loan payments minus the interest they pay out for deposits.

Silicon Valley Bank was acquired by First Citizens Bancshares Inc. (FCNCA), while JPMorgan Chase & Co. (JPM) bought First Republic and New York Community Bancorp (NYCB) acquired Signature Bank.

Separately, KBW on Sunday downgraded New York Community Bancorp to market perform from outperform and cut its target price to $12 from $14.

KBW analyst Christopher McGratty said the stock is up roughly 70% since its deal in March to buy Signature Bank.

While indicators in the banking sector have turned bullish recently, "the narrative is becoming more complicated with credit/expenses entering the equation," McGratty said.

The economy may be headed toward a recession with credit quality now in focus if more borrowers from banks default on their loans, but stock prices have mostly been reflecting this scenario for much of 2023.

With a boost from its acquisition of Signature Bank, New York Community Bancorp has mostly avoided this year's selloff on recession concerns and other woes, but at the current time, KBW is betting that the bank will perform in line with its peers.

New York Community Bancorp's stock has risen 22% in 2023, compared with a 24% rise by the S&P 500 SPX.

The bank is due to report its fourth-quarter results on Jan. 31.

Also read: Are bank stocks poised for a rebound? Three picks for 2024.

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.


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12-19-23 1445ET

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