RankingBanking Web Pageturn - Flipbook - Page 13
11
stand what we’re seeing in the portfolio, why we’re
He believes the industry doesn’t get enough
comfortable and what are the actions that we’re
credit from the market for bringing down expens-
taking separate from what happened in March.”
es over the years. “Overhead continues to be, in
Executives should continue to get in front of in-
my opinion, a missed point by investors,” Marinac
vestors through roadshows and conferences, says
says. He also points to pre-provision net revenue
Schiraldi, but he cautions against too much com-
as an important factor to monitor, helping an in-
munication. “Some of the banks that have been
stitution grow the reserves it needs to fight trou-
beaten up the most have had to respond on almost
bled assets. “The more cash flow a bank has, the
a weekly basis to the market. I don’t think you
more provisions it can expense, the more it can
want to be out there having to defend the story
fight the fire,” he says.
constantly.”
Both Wiley and Brown have been active bank
But in some ways, the fundamentals of bank
investors for decades. They’re familiar with the
investing have changed. In May, The Wall Street
cyclicality of the industry and seek strong, under-
Journal published an article equating bank stocks
valued performers that are more likely to improve
to so-called meme stocks like GameStop Corp.,
over the long term.
the video game retailer that saw its stock rise and
fall based on social media buzz.
An optimistic Brown believes banks are set to
experience the next big bull market, pointing to
“I came to kill the banks,” wrote one short sell-
two others he’s experienced in his career. The first
er, 30-year-old pub owner Daniel Betancourt, on
kicked off in 1989, when Warren Buffett’s Berk-
the messaging platform Discord.
shire Hathaway bought a stake in Wells Fargo. The
Tom Brown, the CEO of hedge fund Second
other began on March 9, 2009, he says, following
Curve Capital, says there’s been a significant
the financial crisis of 2007-08. “Both bull markets
increase in short selling activity in bank stocks.
lasted nine years long, and we’re getting set for the
Many long-term investors appear to be missing
next one,” says Brown. Why? Because many banks
in action.
remain profitable, safe and sound companies. And
“The stock price volatility has been so ex-
the next downturn will bear that out.
treme,” says Oh, noting the dip East West’s stock
“Margins are going to be under more pressure.
took following SVB’s failure. Oh takes a long-term
The loan growth has slowed sharply; asset quality
view. “We need to make sure that we continue to
is going to deteriorate. … who would want to buy
have the financial performance, from an earnings
a bank’s stock in the face of those things?” says
perspective, from a capital generation perspective,
Brown. “The valuation comes down until some-
from a credit quality perspective,” she says. “And
body says, ‘OK, I’ve seen this before. They’re gon-
I am confident over time, [when] there’s distance
na work their way through this.’”
and more clarity about things, that stocks will
come back, for us and for the sector.”
And when the going gets tough, the best banks
will prove just how strong they are.
Of course, banks are particularly vulnerable to
economic cycles. “If you look at the long-term
Emily McCormick is vice president of editorial &
performance of banks, [they’re] not outperforming
research for Bank Director.
the market, and it tends to be flat,” says Marinac.
“It’s good for a little bit, then it’s bad, then sometimes it’s really bad. And then it’s good again, and
then it’s really good, and then it’s just OK.”