Saxo’s Head of Wealth Management Greater China
Summary: US bank stocks rebounded last week, with 8 out of the top 10 performing stocks being bank stocks. This rebound was driven by two factors:
- The stabilization of smaller regional banks, as evidenced by decreasing customer deposit outflow and net interest income.
- The continued strength of consumer banking, as evidenced by increased credit card borrowing and higher loan charges.
While there are still some concerns about the banking industry, such as the exposure to commercial real estate loans, the recent rebound suggests that there may be some value to be had in US bank stocks.
US bank stocks were up +7.2% last week. 8 out of the top 10 performing US stocks last week were bank stocks. Does it mean US bank stocks are in the clear? 2️ insights:
Until this past week US regional banks stocks were down 25% since early March when Silicon Valley Bank (SVB) went under and caused major turmoil in the US banking industry plus a blow to the confidence of US banks (particularly smaller regional banks). Looking at the recent earnings results are US regional banks in the clear? Maybe.
We can say 2 things improved which may suggest stabilization amongst smaller regional banks:
Customer deposits outflow Q2 vs Q1 2023 seems to be stabilizing such as:
Net interest income also seem to be decreasing less in Q2. "Net interest income" (NII) is the difference between the interest income a bank earns from its lending activities and the interest it pays to depositors. So from a perspective that US regional banks have been beat down 'too much', given they are stabilizing seems to be why investors may deem them to be 'undervalued'. But issues still remain which include:
Although there were some 'misses' the majority of the US banking giants reported positive progress in Q2 such as:
But US banking giants relying on more on their corporate/investment banking or trading business suffered in Q2. Examples include Citi's profits were -36% in Q2 (versus Q2 2022) on the back of decreased business and fees from both their trading business and their investing banking division. When looking deeper into the data this issue was felt at Goldman Sachs, Morgan Stanley, JP Morgan and other banking giants to varying degrees. What we can say is US banking stocks have lagged most sectors this year amongst US stocks:
So maybe there is some 'value' to be had for US bank stocks.
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