SOFI - Is the regional bank stock rout overdone? Insiders seem to think so

2023-06-10 14:35:00 ET

The number of U.S. regional bank insiders purchasing shares in their own companies reached a three-year high during Q2, in what appears to be a vote of confidence in the sector after the recent collapse of a few regional lenders, according to research firm VerityData.

The number of insider buyers jumped to 778 in Q2 through May 26 from 524 during all of Q1, Reuters recently reported, citing the VerityData research. The magnitude of this buying frenzy has not been seen since Q1 2020, when the onset of COVID-19 prompted a stock-market selloff. During Q2 through May 26, 2023, some 244 banks experienced heavy insider buying, including US Bancorp ( USB ), Zions Bancorp ( ZION ), SoFi Technologies ( SOFI ) and East West Bancorp ( EWBC ).

Note that the U.S. Securities and Exchange Commission requires company executives to disclose all their trading activity within two business days after the transaction date. Investors generally keep a close eye on such activity on the belief that insiders have more information about the company and its outlook.

Since the onset of the bank crisis, SoFi ( SOFI ) CEO Anthony Noto ratcheted up his stake in the fintech bank through six separate stock purchases, most recently buying 108K shares on May 15 for a weighted average purchase price of $4.67 per share. The student loan-related stock has nearly doubled since then as investors cheered a provision in the U.S. debt ceiling package that sets a definitive end for the pause of the repayments of federal student loans.

In another sign of bullish sentiment among bank insiders, the buyers-to-sellers ratio hit a record high of 14.7 to 1 in Q2, VerityData pointed out , compared with the average quarterly ratio of 1.8 to 1.

Even so, regional bank stocks remained beaten down, albeit stabilizing in recent weeks, triggered by March’s failure of Silicon Valley Bank, with SPDR S&P Regional Banking ETF ( KRE ) down 25.5% since the start of the year, iShares U.S. Regional Banks ETF ( IAT ) off 26.9% and Invesco KBW Regional Banking ETF ( KBWR ) -18.8% as of Friday's close.

In the wake of this weakness, stresses in the banking sector have yet to end. Usage of the Federal Reserve’s Bank Term Funding Program, a new lending facility created in March to ensure banks can meet depositors’ needs, hit a new record high of $100.2B for the week ended June 7. That’s the fifth straight week in which Fed lending to banks through the program has drifted up to a new high.

On May 19, bank stocks dipped after Treasury Secretary Janet Yellen reportedly laid out to CEOs of the largest U.S. banks the potential need for additional bank mergers , reminding investors that the tumult in the sector is still apparent.

For a contrarian view, Seeking Alpha analyst Pacifica Yield laid out a Buy recommendation for Western Alliance Bancorporation ( WAL ), which has been caught up in the bank turmoil, on the basis of its strong deposit growth as well as an expected pause in Fed rate hikes. Fellow SA analyst Albert Anthony rated Comerica ( CMA ), down 36.8% YTD, as a Strong Buy “due to its undervaluation, strong capital ratio, competitive dividend yield, and revenue diversification.”

Looking at SA’s stock screener, New York Community Bancorp ( NYCB ), The Bancorp ( TBBK ), Acos Financial ( AX ) and Peoples Bancorp ( PEBO ) scored the highest Quant rank among U.S. regional bank stocks.

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