2023-03-22 08:15:04 ET
Wells Fargo analyst Christopher Harvey updated the firm's Signature Picks portfolio on Wednesday, adding PNC Financial ( NYSE: PNC ) and U.S. Bancorp ( NYSE: USB ) while dropping Bank of America ( NYSE: BAC ) as it rebalances bank holdings following the failures of three regional banks in the past two weeks.
Since Silvergate Capital ( SI ) announced that it would wind down and regulators took over Silicon Valley Bank and Signature Bank ( SBNY ), the KBW Nasdaq Bank Index ( BKX ) has dropped 20% and the SPDR S&P Regional Banking ETF ( KRE ) slid 21% amid concern over banks' liquidity.
PNC ( PNC ) and U.S. Bancorp ( USB ) have attractive risk/reward profiles with high-quality balance sheets, the analyst said in a note to clients.
Rated Overweight by Well Fargo banking analyst Mike Mayo, PNC shares provides "growth potential from national expansion, lower credit risk historically, a disciplined acquisition strategy, valuation discount to historical, and strong technology," Harvey wrote.
U.S. Bancorp ( USB ), also rated Overweight, "has some of the best offense (revenue growth, operating leverage) and defense (reserves for a 6-6.5% unemployment rate)." It has outperformed in past downturns and maintains the best bond rating of any large bank, the note said.
The portfolio divested its position in Bank of America ( BAC ), also rated Overweight, as "we believe PNC and USB are better risk/rewards after their recent sell-offs, with high quality balance sheets and historically strong credit underwriting through cycles," Harvey said.
In Wednesday premarket trading, PNC ( PNC ) rose 0.3% and U.S. Bancorp ( USB ) shares slipped 0.1% , while Bank of America ( BAC ) gained up 0.4% .
The SA Quant rating has Hold ratings on all three stock, while SA Analysts' average rating and the average Wall Street rating are Buy, as seen in the peer stats comparison tool.
SA contributor Chuck Walston explains why he's banking on U.S. Bancorp.
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Wells Fargo adds PNC, U.S. Bancorp to Signature portfolio, divests Bank of America