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The dramatic drop in regional bank stocks is a key entry point for investors, according to analyst Christopher Marinac.
Marinac, who serves as Director of Research at Janney Montgomery Scott, believes the group’s decline over the past week provides an attractive entry point for investors because underlying business fundamentals remain intact.

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“We have definitely slipped on a banana peel as it pertains to this deposit worry and scare,” Marinac told CNBC’s “Fast Money” on Monday.
The SPDR S&P Regional Banking ETF dropped by more than 12% on Monday after regulators shuttered Silicon Valley Bank and Signature Bank. They’re the second- and third-largest bank failures, respectively, in U.S. history.
“The main lending in America is still mid-size and small community banks,” he added. “Those companies are excellent plays.”
When asked which regional banks look most attractive, Marinac recommends Fifth Third Bank. The stock is off more than 27% over the past week.
“They’re a very innovative company in the fintech arena, which still has merit as we go forward,” he said, adding that CEO Timothy Spence has an “excellent” handle on interest rate risk and credit.

Marinac also named Truist as a top sector pick, saying the company has a competitive advantage among regional banks after selling a portion of its insurance unit. Truist stock has dropped 30% over the past five sessions.
“That’s going to help them pass the stress test in June, so that company certainly is not only a survivor, but a thriver,” he said.
On the longer-term outlook for regionals, Marinac expects the group to pare its losses.
“Eventually, the storm will calm and the seas will part such that banks can go back to trading at book value and higher as we go forward,” Marinac said.

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Evercore ISI is comparing the bank stress to another critical time on Wall Street: The year of the savings and loan crisis and epic crash.
“To think you would see financial stress of this kind develop in the system 24 hours after [Fed] chair Powell suggested he may go 50 [basis points] on the 22nd, just tells you how extremely uncertain the environment is,” the firm’s senior managing director Julian Emanuel told CNBC’s “Fast Money” on Monday.

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In a note out Monday, Emanuel highlighted a striking comparison to the 2-year Treasury Note yield plunge in the aftermath of Friday’s Silicon Valley Bank collapse and 1987.

Arrows pointing outwards

He noted the three-day rate of change in the 2-year yield fell from the 5.08% peak to a recent “trough” of 3.99%.
“This decline is one of the most rapid on record only rivalled by 1987, when Greenspan introduced the ‘Fed Put’ affirming provision of ‘unlimited’ liquidity and cutting rates 75bp in and around the Crash of 1987,” he wrote on Monday to clients.
Emanuel suggests more problems are lurking — especially if the Federal Reserve continues hiking interest rates.
“If what we’ve seen is the first shot across the bow in terms of the effect of tightening, we are going to have a recession,” he told CNBC’s Melissa Lee and the traders.

His forecast calls for a mild recession and retest of last October’s market low.
“Part of the end game is we do want to see enough of a downturn to make stocks attractive,” said Emanuel. “But we’re still a ways from that.”
Emanuel is sticking with his S&P 500 year-end target of 4,150, set in December. It reflects about an 8% gain from Monday’s close.
“The next thing that we really need to be cognizant of is how credit, in general, trades,” Emanuel said.
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Charles Schwab shares cut steep losses on Monday as the financial institution defended its portfolio.
Schwab was taking hits along with other financial firms with massive bond holdings of longer maturities.
Schwab in its update sought to reiterate that it has plenty of access to liquidity and a low loan-to-deposit ratio.

Charles Schwab shares fell on Monday even as the financial institution defended its portfolio, easing fears of a banking crisis in the aftermath of tech-focused Silicon Valley Bank’s and crypto-related Signature Bank’s collapses.
The Westlake, Texas-based financial company closed the session 11.6% lower after dropping as much as 23.3% earlier. The stock was at one point on track for its worst one-day sell-off ever.

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Schwab was taking hits along with other financial firms with massive bond holdings of longer maturities. The fear is that these firms, like Silicon Valley Bank, would need to sell these holdings early at large losses in order to cover deposit withdrawals. But Schwab in its update sought to reiterate that it has plenty of access to liquidity and a low loan-to-deposit ratio.”Focusing attention on unrealized losses within HTM (Held-to-Maturity portfolio) has two logical flaws,” Schwab said. “First, those securities will mature at par, and given our significant access to other sources of liquidity there is very little chance that we’d need to sell them prior to maturity (as the name implies).””Second, by looking at unrealized losses among HTM securities, but not doing the same for traditional banks’ loan portfolios, the analysis penalizes firms like Schwab that in fact have a higher quality, more liquid, and more transparent balance sheet,” the firm added.
Schwab also noted that more than 80% of its total bank deposits fall within the insurance limits of the Federal Deposit Insurance Corp., adding it has “access to significant liquidity” and its business continues to “perform exceptionally well.”
‘Compelling entry point’?
Schwab is the eighth-biggest U.S. bank by assets with $7.05 trillion in client assets and 33.8 million active brokerage accounts at the end of 2022. Because of its retail brokerage deposit model with ample liquidity, some Wall Street analysts think it won’t face a run like SVB did.
“Due to robust supplemental liquidity sources, we think it is very unlikely that SCHW will ever need to sell HTM securities to meet deposit withdrawal requests,” Richard Repetto of Piper Sandler said in a note Monday. The analyst maintained his overweight rating.
Meanwhile, Citi analyst Christopher Allen upgraded Schwab to buy from neutral, saying that the company’s shares have limited risk of deposit flight risk and current valuation levels present a “compelling entry point.”

Schwab’s shares are down more than 37% in 2023, off 44% from their 52-week high. 
SVB’s collapse marked the largest U.S. banking failure since the 2008 financial crisis — and the second-biggest ever. Banking regulators rushed to backstop depositors with money at SVB and now shattered Signature Bank, seeking to ease systemic contagion fears.  
First Republic Bank saw a more severe sell-off on Monday, down more than 70%, after it said Sunday it had received additional liquidity from the Federal Reserve and JPMorgan Chase.

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On Friday, Signature Bank customers spooked by the sudden collapse of Silicon Valley Bank withdrew more than $10 billion in deposits, a board member told CNBC.
That run on deposits quickly led to the third-largest bank failure in U.S. history. Regulators announced late Sunday that Signature was being taken over to protect its depositors and the stability of the U.S. financial system.
“I think part of what happened was that regulators wanted to send a very strong anti-crypto message,” said board member and former congressman Barney Frank.

On Friday, Signature Bank customers spooked by the sudden collapse of Silicon Valley Bank withdrew more than $10 billion in deposits, a board member told CNBC.
That run on deposits quickly led to the third-largest bank failure in U.S. history. Regulators announced late Sunday that Signature was being taken over to protect its depositors and the stability of the U.S. financial system.

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The sudden move shocked executives of Signature Bank, a New York-based institution with deep ties to the real estate and legal industries, said board member and former U.S. Rep. Barney Frank. Signature had 40 branches, assets of $110.36 billion and deposits of $88.59 billion at the end of 2022, according to a regulatory filing.

The Signature Bank headquarters at 565 Fifth Avenue in New York, US, on Sunday, March 12, 2023.
Lokman Vural Elibol | Anadolu Agency | Getty Images

“We had no indication of problems until we got a deposit run late Friday, which was purely contagion from SVB,” Frank told CNBC in a phone interview.
Problems for U.S. banks with exposure to the frothiest asset classes of the Covid pandemic — crypto and tech startups — boiled over last week with the wind down of crypto-centric Silvergate Bank. While that firm’s demise had been long expected, it helped ignite a panic about banks with high levels of uninsured deposits. Venture capital investors and founders drained their Silicon Valley Bank accounts Thursday, leading to its seizure by midday Friday.

Worries spread

That led to pressure on Signature, First Republic and other names late last week on fears that uninsured deposits could be locked up or lose value, either of which could be fatal to startups.  
Signature Bank was founded in 2001 as a more business-friendly alternative to the big banks. It expanded to the West Coast and then opened itself to the crypto industry in 2018, which helped turbocharge deposit growth in recent years. The bank created a 24/7 payments network for crypto clients and had $16.5 billion in deposits from digital-asset-related customers.

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Shares of Signature Bank have been under pressure.

But as waves of concern spread late last week, Signature customers moved deposits to bigger banks including JPMorgan Chase and Citigroup, Frank said.
According to Frank, Signature executives explored “all avenues” to shore up its situation, including finding more capital and gauging interest from potential acquirers. The deposit exodus had slowed by Sunday, he said, and executives believed they had stabilized the situation.
Instead, Signature’s top managers have been summarily removed and the bank was shuttered Sunday. Regulators are now conducting a sales process for the bank, while guaranteeing that customers will have access to deposits and service will continue uninterrupted.

Poster child

The move raised some eyebrows among observers. In the same Sunday announcement that identified SVB and Signature Bank as risks to financial stability, regulators announced new facilities to shore up confidence in the country’s other banks.
Another bank that had been under pressure in recent days, First Republic declared that it had more than $70 billion in untapped funding from the Federal Reserve and JPMorgan Chase.
For his part, Frank, who helped draft the landmark Dodd-Frank Act after the 2008 financial crisis, said there was “no real objective reason” that Signature had to be seized.
“I think part of what happened was that regulators wanted to send a very strong anti-crypto message,” Frank said. “We became the poster boy because there was no insolvency based on the fundamentals.”

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Markets still expect the Fed to keep up its inflation-fighting efforts, despite high-profile bank failures that have rattled the financial system.
Traders on Monday assigned an 85% probability of a 0.25 percentage point interest rate increase when the Federal Open Market Committee meets March 21-22.
Goldman Sachs was virtually alone when it said it expects the central bank to pass up the chance to hike rates next week.

Federal Reserve Chairman Jerome Powell testifies during the Senate Banking, Housing, and Urban Affairs Committee hearing titled The Semiannual Monetary Policy Report to the Congress, in Hart Building on Tuesday, March 7, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images

When the Federal Reserve starts to raise interest rates, it generally keeps doing so until something breaks, or so goes the collective Wall Street wisdom.
So with the second- and third-largest bank failures ever in the books happening just over the past few days, and worries of more to come, that would seem to qualify as significant breakage and reason for the central bank to back off.

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Not so fast.
Even with the failure over the past several days of Silicon Valley Bank and Signature Bank that forced regulators to spring into action, markets still expect the Fed to keep up its inflation-fighting efforts. Surging bond yields played into the demise of SVB in particular as the bank faced some $16 billion in unrealized losses from held-to-maturity Treasurys that had lost principal value due to higher rates.

Still, the dramatic events may not even technically qualify as something breaking in the collective Wall Street mind.
“No, it doesn’t,” said Quincy Krosby, chief global strategist at LPL Financial. “Is this enough to qualify as the kind of break that would have the Fed pivot? The market overall doesn’t think so.”
While market pricing was volatile Monday, the bias was toward a Fed that would continue tightening monetary policy. Traders assigned an 85% probability of a 0.25 percentage point interest rate increase when the Federal Open Market Committee meets March 21-22 in Washington, D.C., according to a CME Group estimate. For a brief period last week, markets were expecting a 0.50-point move, following remarks from Fed Chair Jerome Powell indicating the central bank was concerned about recent hot inflation data.

Pondering a pivot

Goldman Sachs on Monday said it does not expect the Fed to hike rates at all this month, though there were few, if any, other Wall Street forecasters who shared that view. Both Bank of America and Citigroup said they expect the Fed to make the quarter-point move, likely followed by a few more.
Moreover, even though Goldman said it figures the Fed will skip a hike in March, it still is looking for quarter-point increases in May, June and July.
“We think Fed officials are likely to prioritize financial stability for now, viewing it as the immediate problem and high inflation as a medium-term problem,” Goldman told clients in a note.
Krosby said the Fed is at least likely to discuss the idea of holding off on an increase.
Next week’s meeting is a big one in that the FOMC not only will make a decision on rates but also will update its projections for the future, including its outlook for GDP, unemployment and inflation.
“Undoubtedly, they’re discussing it. The question is, will they be worried perhaps that that nurtures fear?” she said. “They should telegraph [before the meeting] to the market that they’re going to pause, or that they’re going to continue fighting inflation. This is all up for discussion.”

Managing the message

Citigroup economist Andrew Hollenhorst said pausing — a term Fed officials generally dislike — now would send the wrong message to the market.
The Fed has sought to burnish its credentials as an inflation fighter after it spent months disavowing rising prices as nothing more than a “transitory” effect from the early days of the Covid pandemic. Powell repeatedly has said the Fed will stay the course until it makes significant progress in getting inflation down to its 2% target.
Citi, in fact, sees the Fed continuing to raise its benchmark funds rate to a target range of 5.5%-5.75%, compared to the current 4.5%-4.75% and well above the market pricing of 4.75%-5%.
“Fed officials are unlikely to pivot at next week’s meeting by pausing rate hikes, in our view,” Hollenhorst said in a client note. “Doing so would invite markets and the public to assume that the Fed’s inflation fighting resolve is only in place up to the point when there is any bumpiness in financial markets or the real economy.”
Bank of America said it remains “watchful” for any signs that the current banking crisis is spreading, a condition that could change the forecast.
“If the Fed is successful at corralling the recent market volatility and ringfencing the traditional banking sector, then it should be able to continue its gradual pace of rate hikes until monetary policy is sufficiently restrictive,” Michael Gapen, BofA’s chief U.S. economist, told clients. “Our outlook for monetary policy is always data dependent; at present it is also dependent on stresses in financial markets.”
Powell also has emphasized the importance of using data to determine the direction in which he wants to steer policy.
The Fed will get its final look at inflation metrics this week when the Labor Department releases its February consumer price index on Tuesday and the producer price counterpart on Wednesday. A New York Fed survey released Monday showed that one-year inflation expectations plummeted during the month.

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Jeffrey Gundlach speaking at the 2019 SOHN Conference in New York on May 6th, 2019.
Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach believes that the Federal Reserve will still pull the trigger on a small rate hike next week despite the ongoing chaos in the banking sector that prompted extraordinary rescue action from regulators.
“I just think that, at this point, the Fed is not going to go 50. I would say 25,” Gundlach said on CNBC’s “Closing Bell” Monday. To save the central bank’s “credibility, they’ll probably raise rates 25 basis points. I would think that that would be the last increase.”

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6 hours ago

The collapses over the past several days of Silicon Valley Bank and Signature Bank — the second- and third-largest bank failures in U.S. history — made some investors believe the Fed would hold off on rate increases to ensure stability. However, Gundlach said the central bank would still keep up its inflation-fighting efforts that it has promised.

“This is really throwing a wrench in [Fed Chair] Jay Powell’s game plan,” Gundlach said. “I wouldn’t do it myself. But what do you do in the context of all this messaging that has happened over the past six months, and then something happens that you think you’ve solved.”
Traders assigned an 85% probability of a 0.25 percentage point interest rate increase when the Federal Open Market Committee meets March 21-22 in Washington, D.C., according to a CME Group estimate.
While Gundlach sees more tightening ahead, he doesn’t necessarily think that’s the correct response right now.
“I think that the inflationary policy is back in play with the Federal Reserve … putting money into the system through this lending program.” Gundlach said.

Officials unveiled a plan Sunday to backstop depositors at both failed banks. The Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund as a backstop for any potential losses from the funding program. The Fed said it will also provide loans up to one year for institutions affected by the bank failures.
The widely followed investor also warned that the rapid steepening of the Treasury yield curve after a sustained period of inversion is highly indicative of imminent recession.
“In all the past recessions going back for decades, the yield curve starts de-inverting a few months before the recession comes in,” Los Angeles-based Gundlach said.

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