Wells Fargo analyst Timur Braziler has downgraded four U.S. regional banks while sharing his top picks in the sector. Despite being historically inexpensive, the regional bank group lacks major catalysts and has experienced above-average volatility. Braziler’s top picks include Western Alliance Bancorp, F.N.B. Corp, Pinnacle Financial Partners Inc., and East West Bancorp. Of these stocks, Western Alliance Bancorp and F.N.B. Corp are highlighted for their healthy deposits, which are expected to drive earnings growth. East West Bancorp is positioned to benefit from higher interest rates and its strong credit profile, while Pinnacle Financial offers less exposure to commercial real estate.
On the other hand, Braziler downgraded Associated Banc-Corp, First Horizon Corp, Banc of California Inc, and First Interstate Bancsystem Inc. Associated Banc-Corp faces challenges from higher interest rates, while First Horizon is dealing with expenses related to an unsuccessful merger attempt. Banc of California is experiencing delays in the benefits of its pending acquisition, and First Interstate offers a weaker profit profile.
Overall, regional banks continue to face competition for deposits, making institutions with high loan-to-deposit ratios and outsized asset growth more vulnerable. Additionally, normalization of credit trends and potential merger deals are long-term themes, although near-term activity may remain subdued due to the impact of interest rates, credit, and accumulated other comprehensive income (AOCI).
In related news, Jared Shaw, who previously covered regional banks for Wells Fargo, has left the firm.
