In this piece, we will take a look at the 15 best bank stocks to buy now according to hedge funds. For more bank stocks, head on over to 5 Best Bank Stocks to Buy Now According to Hedge Funds.
These days, anything that anyone can talk about in the finance industry is the collapse of SVB Financial Group (NASDAQ:SIVB). SVB’s fate is closely tied to the current situation of the American economy, and before we get to that, it’s better to first take a primer on the current situation.
For the banking and stock markets, along with the corporate world in general, the main topic of discussion for the past twelve months now is the Federal Reserve Bank. Known as the Fed, the central bank is responsible for defending the U.S. dollar’s purchasing power against inflationary pressures, and after it reduced interest rates to a record low due to the coronavirus pandemic, it has spent the past year in course correction to bring down inflation. This has seen the Fed hike interest rates by a massive 4.25 percentage points since March 16 last year, as it aims to reduce the demand for capital in the market and control the flow of currency to bring down goods and services prices as a consequence.
However, these are not the only consequences of the monetary policy shifts. Another direct result of rising interest rates comes in the form of higher bond yields. For the uninitiated, a bond’s yield is its interest payment divided by its price (the interest rate is fixed). So, since the interest payment is fixed for previously issued bonds, if the Fed raises interest rates, the prices of the low rate bonds fall in the market and their yields start to rise. This dynamic sits at the heart of the SVB collapse, as the bank had heavily bought these bonds during the coronavirus pandemic when interest rates were low. What made it buy these bonds? Well, back then, the bank’s deposits had soared to a whopping $124 billion from an earlier $62 billion, at a pace that saw it beat much larger rivals such as JPMorgan Chase & Co. (NYSE:JPM), as SVB’s client based, mostly consisting of the technology industry, saw its fortunes rise with the technology sector in the wake of the coronavirus pandemic.
This large deposit base was made up of unstable money that belonged to companies and venture capital firms – both of which could withdraw it at a moment’s notice and leave SVB without adequate funds to cover its obligations. Since these deposits accrued faster than the bank’s customers required money, SVB had to invest them into securities. This investment decision is at the heart of its collapse and the impact of the Fed’s rate hike induced yield spiral. At this point in the decision making cycle, banks can choose to either invest the funds into available for sale or held to maturity securities. The former enables the bank to quickly recover the money without taking losses, but the latter requires it to take a haircut if the bonds are sold before their maturity date – a fact that bit SVB hard when the interest rate hike drove down the prices of older bonds since between 2019 and today, while its available for sale portfolio grew by 93%, its held to maturity portfolio grew by a stunning 607%! At the same time, the bank’s balance sheet at the end of December 2022 revealed that $86 billion of its $91 billion HTM securities were expected to mature after ten years. Out of these $ 91 billion dollars of HTM securities, the bank booked an unbelievable $15.160 billion in unrealized losses in its last fiscal year. These losses shocked the market when SVB announced that it would sell $2.5 billion in shares to help buffer them, sending its shares tumbling by 60%.
Yet, still, for those unfamiliar with banking regulations, the impact of all this will be lost at this point. To ensure that banks do not become insolvent after booking these losses, the Bank for International Settlements (BIS) requires banks to hold core capital that consisted primarily of its own equity to ensure that the losses can be covered and the bank does not run out of money. This capital is called Tier 1 Capital, and when it’s divided by the bank’s total assets this leads to the Tier 1 Capital Ratio – a percentage used by regulators to evaluate bank health. For SVB, according to JPMorgan, once the unrealized losses were accounted for, this ratio dropped to below 1% from an earlier reading of 12%. JPMorgan’s own ratio sits a little over 13% and drops a little below 12% once the unrealized losses are accounted for.
As JPMorgan points out:
While capital, wholesale funding and loan to deposit ratios improved for many US banks since 2008, there are exceptions. As shown in the first chart, SIVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits. Bottom line: SIVB carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales.
With these gory details in mind, today we’ll look at some bank stocks that hedge funds were piling into at the end of 2022. Out of these, the top three are Wells Fargo & Company (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), and Bank of America Corporation (NYSE:BAC).
Source: Federal Reserve.
Chairman Powell presents the Monetary Policy Report to the Senate Committee on Banking, Housing, and Urban Affairs. Report here: www.federalreserve.gov/monetarypolicy/2018-07-mpr-summary…
Our Methodology
We sifted through Insider Monkey’s Q4 2022 database of 943 hedge funds and picked out their top bank investments, which are listed below. Basically, we list the best bank stocks to buy according to hedge funds. Since some of these stocks have already experienced large losses, most hedge funds haven’t seen this new crisis coming. However, we believe their top 5 bank stock picks are likely to outperform the rest of their bank stock picks as depositors are shifting from smaller banks to too big to fail large banks and banks like JP Morgan, Wells Fargo, and Bank of America will be the beneficiaries of these low-cost funds.
15 Best Bank Stocks to Buy Now According to Hedge Funds
15. Truist Financial Corporation (NYSE:TFC)
Number of Hedge Fund Holders In Q4 2022: 44
Truist Financial Corporation (NYSE:TFC) is a regional bank headquartered in Charlotte, North Carolina. It offers accounts, asset management, loans, and other financial products.
By the end of last year’s fourth quarter, 44 of the 943 hedge funds polled by Insider Monkey had bought Truist Financial Corporation (NYSE:TFC)’s shares. Out of these, Ric Dillon’s Diamond Hill Capital is the firm’s largest investor with a $562 million stake that comes via 13 million shares.
Along with JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), and Bank of America Corporation (NYSE:BAC),
14. Citizens Financial Group, Inc. (NYSE:CFG)
Number of Hedge Fund Holders In Q4 2022: 45
Citizens Financial Group, Inc. (NYSE:CFG) is another regional bank that is headquartered Providence, Rhode Island. The bank was set up in 1828 and it offers deposit products, mortgages, and other services.
As of December 2022, 45 of the 943 hedge funds surveyed by Insider Monkey had bought the bank’s shares. Citizens Financial Group, Inc. (NYSE:CFG)’s largest investor in our database is Israel Englander’s Millennium Management which owns 3 million shares that are worth $120 million.
13. SVB Financial Group (NASDAQ:SIVB)
Number of Hedge Fund Holders in Q4 2022: 45
SVB Financial Group (NASDAQ:SIVB) was a California based bank that was placed under the receivership of the Federal Deposit Insurance Corporation (FDIC) in March 2023 after a bank run.
45 of the 943 hedge funds part of Insider Monkey’s Q4 2022 survey had held a stake in the company. SVB Financial Group (NASDAQ:SIVB)’s largest hedge fund investor is Phillip Gross and Robert Atchinson’s Adage Capital Management which owns 746,202 shares that are worth $171 million.
12. The PNC Financial Services Group, Inc. (NYSE:PNC)
Number of Hedge Fund Holders In Q4 2022: 49
The PNC Financial Services Group, Inc. (NYSE:PNC) is a regional bank set up in 1852 and headquartered in Pittsburgh, Pennsylvania. The bank offers mortgages, loans, ATMs, and other products.
Insider Monkey’s December quarter of 2022 survey covering 943 hedge funds revealed that 49 had bought The PNC Financial Services Group, Inc. (NYSE:PNC)’s shares, with Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital being its largest investor by owning a $169 million stake.
11. First Horizon Corporation (NYSE:FHN)
Number of Hedge Fund Holders In Q4 2022: 49
First Horizon Corporation (NYSE:FHN) is a Tennessee based bank that provides insurance processing, wealth management, and traditional banking services.
As of December 2022, 49 of the 943 hedge fund portfolios studied by Insider Monkey had invested in the bank. George Soros’ Soros Fund Management is First Horizon Corporation (NYSE:FHN)’s largest investor in our database, as it owns 8.5 million shares that are worth $209 million.
10. Discover Financial Services (NYSE:DFS)
Number of Hedge Fund Holders In Q4 2022: 52
DFS ranks 10th on our list of the best bank stocks to buy. Discover Financial Services (NYSE:DFS) is a financial services firm that also runs a digital bank providing loans and deposit products.
Insider Monkey dug through 943 hedge funds for their fourth quarter of 2022 investments and found out that 52 had bought Discover Financial Services (NYSE:DFS) ‘s shares. Out of these, Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the firm’s largest investor through a $269 million stake.
9. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders In Q4 2022: 55
Morgan Stanley (NYSE:MS) is a diversified bank that offers investment management, wealth management, financial advisory, debt management, and other services.
55 of the 943 hedge funds part of our database had invested in Morgan Stanley (NYSE:MS) during Q4 2022. The bank’s largest hedge fund investor is Ken Fisher’s Fisher Asset Management which owns 18.9 million shares that are worth $1.6 billion.
8. The Bank of New York Mellon Corporation (NYSE:BK)
Number of Hedge Fund Holders In Q4 2022: 55
The Bank of New York Mellon Corporation (NYSE:BK) provides lending, analytics, leasing, wealth management, insurance, accounting, and other services.
As of December 2022, 55 of the 943 hedge funds polled by Insider Monkey had bought a stake in the company. The Bank of New York Mellon Corporation (NYSE:BK)’s largest shareholder is Warren Buffett’s Berkshire Hathaway which owns 25 million shares that are worth $1.1 billion.
7. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Holders In Q4 2022: 58
U.S. Bancorp (NYSE:USB) is a regional bank headquartered in Minneapolis, Minnesota. It provides corporate, commercial, consumer banking, and wealth and investment management services.
58 of the 943 hedge funds part of Insider Monkey’s database had held a stake in U.S. Bancorp (NYSE:USB) during Q4 2022. Out of these, Jean-Marie Eveillard’s First Eagle Investment Management is the bank’s largest investor. It owns 9.8 million shares that are worth $430 million.
6. The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders In Q4 2022: 74
The Goldman Sachs Group, Inc. (NYSE:GS) is one of the biggest banks in the world and is headquartered in New York, New York. It provides services to a variety of customers such as governments, institutions, and individuals.
Insider Monkey dug through 943 hedge fund holdings for last year’s fourth quarter and found out that 74 had bought the bank’s shares. The Goldman Sachs Group, Inc. (NYSE:GS)’s largest investor in our database is Ken Fisher’s Fisher Asset Management which owns 4.9 million shares that are worth $1.6 billion.
Wells Fargo & Company (NYSE:WFC), JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), and
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Disclosure: None. 15 Best Bank Stocks to Buy Now According to Hedge Funds is originally published on Insider Monkey.