WBS - UBS awards Western Alliance as its top buy among 19 regional banks buy sell hold initiations

2023-03-15 12:52:31 ET

• Crowning Western Alliance Bancorp ( WAL ) as its top buy (price target of $15) among 19 mid-cap banks that UBS initiated coverage on Wednesday, analysts believe that these regional banks are in "no man's land", with funding and credit concerns in focus, and projecting a recession in 2024 weighing on mid-cap valuations.
• Analyst Brody Preston says, "We view WAL’s exposure to more volatile tech/ innovation deposits as manageable, and believe the company’s credit profile is fundamentally misunderstood."
• The other Buys in the list include: Bank OZK ( OZK ), New York Community Bancorp ( NYCB ), Comerica ( CMA ), Webster Financial ( WBS )
• Among the sells are, First Citizens BancShares ( FCNCA ), Texas Capital Bancshares ( TCBI ), Cullen/Frost Bankers ( CFR ), Cadence Bank ( CADE ); "For FCNCA, we are 9%-15% below consensus earnings due to lower NII/higher credit costs, and think the risk of de-rating is elevated given legacy-CIT related credit risk."
• The bank assigns Neutrals to the remaining 10 which include: ( ASB ), ( BPOP ), ( BKU ) ( COLB ), ( EWBC ), ( FIBK ), ( ONB ), ( SNV ), ( SSB ), ( WTFC ).
• Inflation remains elevated while unemployment is at multidecade lows, with the Fed getting more hawkish; higher near-term rates would likely be positive for bank NII/NIMs in the short-term.
• Amid the Silicon Valley Bank failure, investors/analysts are more closely scrutinizing sources of liquidity at banks; UBS believes that banks have more balance sheet flexibility than liquidity disclosures indicate.
• CFR has no pledged loans, which provides them more flexibility than indicated while WAL increased cash balances through liquidity enhancement strategies, such as increased asset pledging.

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