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Regional banks PNC and U.S. Bancorp could prove smart picks in the sector while it’s still feeling pressure from the latest crisis, Wells Fargo said. Investors have zeroed in on regional bank stocks in recent days while trying to decipher if plans to help First Republic shore up liquidity are enough to keep the bank afloat. It comes amid broader fears that other financial institutions might face the same fate as Silicon Valley and Signature. The SPDR S & P Regional Bank ETF (KRE) has gained 6% this week, regaining some of the ground lost last week, when it slid 14%. Analyst Mike Mayo at Wells Fargo named PNC and U.S. Bancorp top picks in the sector due to what he sees as near-term upsides, placing them ahead of Bank of America . “To us, catalysts for large-cap banks include both the elimination of the ‘bank crisis discount’ and, at some point, the ‘recession discount,'” he said in a note to clients Wednesday. “We see more near-term upside for PNC and USB, which we now rank ahead of BAC.” The analyst, who began his career at the Federal Reserve in 1988, said the two banks, both of which he rates overweight, have revenue opportunities due to recent acquisitions. The purchases can keep growth relatively high compared with expenses, he said. PNC recently bought the U.S. business of Banco Bilbao Vizcaya Argentaria, known as BBVA, which Mayo said can help expand its footprint while allowing the bank to cross-sell a wider range of products. U.S. Bancorp, the parent of U.S. Bank, completed its acquisition of Union Bank’s regional franchise near the end of 2022. ‘Highest quality banks’ Mayo called both among the “highest quality banks,” noting a strong history of underwriting. KRE PNC,USB mountain 2023-03-08 PNC and U.S. Bank’s performances compared with the regional banking ETF For PNC, Mayo said it’s a lower-risk bank with leading technology that’s looking to expand its national presence. The stock fared better than the regional bank ETF last week, shedding just under 10%, putting the year-to-date loss at 16.7% since the start of 2023. Mayo set a price target of $198 for PNC, implying a rally of about 50% from where it closed Tuesday. But Mayo warned that PNC has to implement cost-saving plans and enact business growth opportunities related to the BBVA acquisition in order for the stock to perform, while also noting that increased competition or greater-than-expected credit losses could hurt performance. He said U.S. Bank has strong risk management, best-in-industry debt ratings and consistent earnings. Mayo also said the bank has the highest capital returns, helped in part by its position as the largest U.S. bank that’s not considered a systemically important financial institution. “USB has been a consistent, high premium bank, and while the industry has become more ‘USB-like’ during good times, we see USB maintaining its competitive advantage in bad times,” he said. Shares have regained 14% this week after losing almost 19% last week. The stock has fallen a total of 14% since the year began. But Mayo sees upside ahead, with his price target of $60 implying the stock could rally about 60% from where it closed Tuesday. Changes to payment systems or the broader economic or credit environment could affect future performance. — CNBC’s Michael Bloom contributed to this report.
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