NEW YORK, January 15 (Reuters) – A rally in the shares of regional banks can be confirmed when a number of lenders’ statements come to fruition in the coming week. Regional banks in the S&P 500 have risen 11% since the beginning of the year, offsetting the gains in larger and more complete banks by around a percentage point over the same period. Both regional and diversified banks are well ahead of the S&P 500 benchmark, driven by a rise in Treasury yields to their highest levels since the outbreak of the pandemic. further economic growth.
Smaller banks often perform better in the early stages of economic recovery as their earnings and incomes depend more on the returns on which Treasury yields are higher. than their largest competitors, which have additional revenue streams such as trading segments or capital markets.
Upcoming employment reports will show if this trend is sustained. Much of the pain from COVID-19-fuel locks has fallen on the smaller businesses and low- to middle-income consumers who are more likely to be customers of regional banks, Ian Lapey said. Gabelli Global Financial Services Fund package manager.
“The big banks with the big customers are in better shape across the board” because they have more access to credit markets and investment banking revenues, he said. This year “regional banks will have a challenging year. Interest rates have moved up but they are still very low and unemployment is still high and they can’t get over it quickly even with the vaccine. ”
As a result, Lapey only holds regional banks with “pristine credit quality” such as Webster Financial Corp and First Citizens Bancshares Inc, both of which are up more than 10% since the beginning of the year.
Regional banks, including Zions Bancorp, First Midwest Bancorp and United Community Banks Inc, are expected to report their quarterly results on Tuesday.
Overall, larger banks will grow average earnings by 112% in the coming year while regional banks will grow their average earnings by 33%, said Dick Manuel, equality research analyst at Columbia Threadneedle Investments.
That trend will continue into next year as well, with larger banks posting average employment growth of 29% between 2021 and 2022 while regional banks will post an average employment growth of 13%, he said.
At the same time, larger banks are trading at 11.5 times the average expected 2022 earnings, compared to an average earnings of 13.3 times 2022 among the largest regional banks, Manuel said.
David Ellison, portfolio manager who runs two financial funds at Hennessy Funds, sees little value in regional banks at a time when online lenders such as SoFi, PayPal and Square are ready to eat into their customer base for personal and small business loans.
“The reality is that these franchises are losing value at a faster rate because technology platforms out there are lending electronically,” he said. “Children are entering the banking system today through Robinhood or Venmo or SoFi, they are not going down to the regional bank in their city.”
As a result, it is aimed at appearing on regional banks that are either ready to take over their competitors or be acquired by a competitor.
“This is not a job opportunity because they have never gone down,” he said. “It’s an opportunity to consolidate.”
Reporting by David Randall; Edited by Ira Iosebashvili and Marguerita Choy