PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL) are two bank stocks that were negatively affected by the Silicon Valley Bank debacle.
Christopher Marinac, Director of Research at Janney Montgomery Scott, believes this may provide investors with a low entry point into the stocks.
In this 5,517 word interview, exclusive to the Wall Street Transcript, Mr. Marinac details what it will take for PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL) and the entire banking sector to recover.
Christopher Marinac, Director of Research, Janney Montgomery Scott.
Mr. Marinac oversees the firm’s Equity Research team, which covers more than 225 companies within the financials, health care, infrastructure, and real estate sectors.
Mr. Marinac has more than 27 years of financial services and research analysis experience. Prior to joining Janney in 2019, he was Co-Founder and Director of Research at FIG Partners LLC, a premier investment banking and research firm specializing in community banks.
At FIG, he established and managed an award-winning Equity Research team that covered more than 150 banks, thrifts, and REITs.
Earlier in his career, he spent six years as Managing Director at SunTrust Robinson Humphrey and five years as a Research Analyst at Wachovia Corporation (formerly Interstate/Johnson Lane Inc.).
He has served as a financial expert and resource to global and national media outlets including American Banker, Bloomberg, CNBC, Financial Times, FOX Business, and The Wall Street Journal.
Mr. Marinac graduated from Kent State University with a Bachelor of Science in Accounting and Finance.
He is actively involved with Atlanta Ronald McDonald House Charities Inc., where he is serving his fourth three-year term as a board member.
“Every investment participant can either be labeled as a specialist, where they’re bank-dedicated specialists and really understand banks and financials, or they are generalists, which is that they own multiple sectors, they have expertise in some, but they tend to be general, and so they’re not, I would say, bank aficionados.
They own banks because they are required since banks tend to be a major part of the index.
If you’re Russell 2000, you might be almost 20% in banks. Other indices, it may be closer to 12% or 15%.
Either way, the bank sector tends to be a meaningful component of your benchmark, and you must knowingly underweight your benchmark and have zero relative to your benchmark.
Sometimes that happens.
In 2008 and ’09, there were many investors who just completely left the sector because they wanted to let the dust settle on the carnage of the Great Financial Crisis. And because of those memories, a lot of people thought that because of a couple of bank failures that we’re right back to the financial crisis of 2008.
That’s not the case, but it is the issue that we face, because perception can be reality in the short term in the stock market.
And so, we must be respectful of the idea that we have investors who think this is a repeat of 2008 and 2009, and that muscle memory of looking back so quickly at 2008 is why the stocks are underperforming.
The flip side of this whole conversation is the opportunity to have outsized profits in banks if given the time and patience for this to play out.
That’s really where the debate goes, and where I think our conversation could be enjoyable for readers, because I think that’s where the opportunity is.
So part of what I thought might be interesting is to give you a little bit of a lay of the land for what the concern is with investors, and then how we feel it’s going to play out.”
This may benefit investors will to put their investment dollars into PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL).
“…That’s part of the challenge that hit us in March, because Silicon Valley Bank had the largest securities portfolio, a lot of it was classified as held to maturity — HTM — and it was definitely underwater immediately from higher interest rates.
Silicon Valley did not prepare for the liquidity necessary to give their depositors their money back, and so Silicon Valley had a classic run on the bank in a matter of hours on March 9th, 2023.
The bank failed the next day, because the FDIC had to close it because the bank was upside down; they just didn’t have a choice.
That led to a contagion of Signature Bank (OTCMKTS:SBNY) and First Republic (OTCMKTS:FRCB) and a few other banks, namely PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL) who struggled and have since stabilized.
My opinion is that Western Alliance and PacWest moved deftly to raise liquidity and position themselves to get back on their feet.
They have shrunk in size, but they were able to raise liquidity to stabilize these big outflows.
First Republic hadn’t been able to stabilize, and ultimately failed on the 30th of April.
There were a good seven weeks that passed, but First Republic just was not able to stay open as an FDIC bank; they had to be failed, and then JPMorgan (NYSE:JPM) bought the assets at a discount.
So, where we are today is that the marketplace is still struggling with the aftermath.
We have questioned PacWest (NASDAQ:PACW) and Western Alliance (NYSE:WAL)
The stocks have been very negatively affected, PacWest more than Western Alliance.
As of today, PacWest trades approximately 36% of its tangible book. Western Alliance is about 85% of its tangible book.
Many banks are trading between 80% to 100% price to book. There are a lot of bank stocks trading at discounts.
There’s been all kinds of conjecture about other possible issues with these big regional banks around the country, and I would tell you that I think there’s been a lot of misinformation from the beginning about what is and isn’t a risk in the system.
Investors are confused.
Some of the general investors believe that they can’t invest in banks, and so they took positions to zero.
There’s an anti-bank mentality in many parts of Wall Street today.
It’s unfortunate, but it’s also the same thing we experienced in 2009.
We’ve seen this movie before and we know how it ends, and it doesn’t really end badly, it just ends with challenges that the industry must face to work through the issues.
2009 was really credit related.
This time it is more interest rate related, and we still have to solve some of these problems.”
Read the entire 5,517 word interview, exclusive to the Wall Street Transcript.
