. However, veteran Wells Fargo banking analyst Michael Mayo notes that the Moody’s report is looking back on the past 15 months and following the trend of equity analysts who have lowered the average earnings estimate for banks by 20%. The Federal Reserve has already pushed up rates to stem inflation and signaled its willingness to raise rates again. It has also announced plans to raise capital requirements for large banks.
Mike Mayo says the price discount on regional bank stocks from rising interest rates and the potential recession are overblown, but investors should still be cautious for increased regulation.Bank deposit runs at large regionals like Silicon Valley Bank and First Republic, starting in the March, have been a gut-punch to the entire regional bank sector . But higher rates can mean expanding net interest margins and savvy analysts say there are bargains out there.
Yokum added that PNC has a large loan to deposit ratio at 75%, giving the option to keep their net interest margins level or maintain deposits.Fifth Third Bancorp Yokum disagrees on U.S. Bancorp, saying he considers U.S. Bancorp as a hold because of the December acquisition of Union Bank that brought the capital levels lower and exposed the bank to potential risk with higher unrealized security losses.
“We’re not expecting them to have significant critical issues,” he says. “It's definitely a headwind that will likely hit a decent number of banks and we’re not expecting them to get hit too hard by that.” The California based bank primarily caters to Asian Americans, and it’s one of the few U.S. banks with a banking license in China.