Bank stocks have been increasingly volatile following the collapse of Credit Suisse (CS) and regional banks including SVB and Signature Bank. The acquisition of Credit Suisse by UBS (UBS) has led UBS to bring its former CEO, Sergio P. Ermotti back at the helm to ensure a smooth integration of CS.
However, it now appears that CS could be bringing a fresh set of regulatory and legal hurdles for UBS after a Senate Finance Committee report indicated that the bank could have provided a safe haven for U.S. clients to conceal their offshore assets and income from the Internal Revenue Service (IRS).
The bank did this even after pleading guilty in 2014 to criminal charges for “knowingly and willfully” helping U.S. clients hide their offshore assets and income from the IRS.
Meanwhile, it seems that the run-in on SVB’s bank deposits went deeper than anticipated after Michael Barr, vice chair for supervision at the Federal Reserve, testified before the Senate Banking Committee on Tuesday that just before SVB was shuttered on March 10, the bank had informed the Fed that “they expected the outflow to be vastly larger based on client requests. A total of $100 billion was scheduled to go out the door that day.”
This $100 billion combined with the $42 billion (in total $142 billion) in deposits withdrawn by customers on March 9 was a staggering 81% of SVB’s $175 billion in deposits at the end of FY22.
Considering the volatility in stocks from the banking sector, are they really worth investing in right now?
Ed Yardeni, President, and Chief Investment Strategist at Yardeni Research, along with Joe Abbott, Chief Quantitative Strategist seem to believe that banking stocks are still worth investing in.
They stated in a research note, “We liked the financials sector before SVB imploded and like it even more since, as the fallout we expect doesn’t include systemic contagion and does include more M&A activity.” The strategists added that the SVB implosion had left banking stocks cheaper and they “don’t expect more bank runs, a credit crunch and a recession. We do expect that banks will have to raise their deposit rates to avert disintermediation. That undoubtedly will squeeze the profit margins of many banks, especially the small community and regional banks.” This could result in “lots of M&A activity aimed at cutting costs through consolidation.”
Over the past year, the SPDR S&P Bank ETF (KBE) has declined by more than 30%.
