Let’s start by stating the obvious – the recent banking meltdown certainly isn’t a positive for investors. When SVB Financial (NADSAQ:SIVB) and other banks failed, investors confidence in the financial sector has taken a hit. Accordingly, while a buying opportunity has been created in specific companies, serious concerns remain. That said, I’m in the camp that looking for stocks to buy likely makes a lot of sense right now.
That’s because while risks are high right now, there are other reasons investors in the banking sector may want to remain calm. The FDIC has stepped in, guaranteeing that all deposits, even those beyond the FDIC $250,000 insured deposit level, would be covered in affected banks. That has quelled the contagion risk for the time being.
Meanwhile, greater debate has been opened up around moral hazard and questions about future ramifications down the line. We simply don’t know what the repercussions will be.
There’s a very reasonable argument to be made that Silicon Valley’s elite have been rescued, despite what was clearly poorly-administered banking at Silicon Valley Bank. Sure, if regulators hadn’t have stepped in, much bigger dominoes may have fallen. That said, it’s clear that this mess is one that the Federal Reserve and others simply didn’t see coming.
With things calming down somewhat, let’s take a look at three banking stocks to buy, for those looking to capture some of the upside potential of these beaten-down banks.
|FRC||First Republic Bank||$12.36|
First Republic Bank (FRC)
First on this list of stocks to buy is a bank that has been in the news as a potential candidate to fail due to the SVB collapse. First Republic Bank (NYSE:FRC) has seen its valuation take a massive hit due to this collapse. Interestingly, the fallout from the collapse of Silvergate Capital (NYSE:SI) wasn’t as big of a deal. That’s largely because its crypto lending differentiated it from other banks. The risk was clearer.
But when SVB fell, all attention suddenly focused on regional banks across the nation. If SVB could fall, they could too.
And that’s exactly what looked to be happening for a moment. Shares fell dramatically last week, halted on multiple occasions. The FDIC’s pledge, a day earlier, to make SVB and Signature depositors whole only partially assuaged doubts. Contagion fears remained high, despite assurances from President Biden, the Fed, and the FDIC.
Luckily for First Republic Bank, other constituent parts of the banking system stepped in to prop it up. The largest U.S. banks collectively deposited $30 billion into First Republic Bank on March 16. It’s a quasi-bailout that likely means FRC stock is set to rebound quickly, even though you and I know little about the behind-the-scenes haggling and underlying issues.
While FRC stock certainly has massive upside potential, this risk is also very real with this play. Invest accordingly.
JPMorgan Chase (JPM)
Assuming the entire banking system doesn’t collapse, JPMorgan Chase (NYSE:JPM) stock is highly likely to emerge as one of the greatest victors of the meltdown. It was one of the four big banks that deposited billions into First Republic Bank on March 16. That fact is a testament to its position and importance to the financial system as the largest bank.
It’s also clear that depositors recognize the inherent value of that position. Reports quickly emerged that too-big-to-fail banks including JPMorgan Chase & Co. saw a massive influx of new depositors immediately following SVB’s collapse. The result is that the nation’s biggest bank just got bigger.
In other words, JPMorgan’s power is consolidating in a manner it couldn’t have predicted just a week prior. So, suddenly the firm is going to have billions in additional deposits, as investors flee to safety. I think JPM stock is among the strongest banking plays on the market, and that’s the reason why this stock is on the list. It’s as simple as that.
Credit Suisse (CS)
Credit Suisse (NYSE:CS) emerged as one of the first European dominoes at risk of falling as contagion fears spread. But like other banks that have encountered trouble, Credit Suisse has also been spared in the 11th hour.
The Swiss Central Bank loaned Credit Suisse the equivalent of roughly $54 billion on March 15, stabilizing it and preventing a collapse. The influx of liquidity clearly reduced some of the initial fear around this bank outright failing. However, it ultimately wasn’t enough to stabilize this bank amid the global issues in this sector, and the bank acknowledged bankruptcy as a possibility.
This situation led to a high-profile scenario in which rival UBS (NYSE:UBS) was forced into a no-win situation as regulators leveled an ultimatum to Switzerland’s other big bank – let Credit Suisse go bankrupt, or buy it in a takeover.
UBS ultimately chose to take over Credit Suisse, as bankruptcy held the risk of besmirching the already weakened Swiss-banking brand.
So, what does that mean for holders of CS shares? To be sure, they will be delisted from the New York Stock Exchange in the future. But CS shareholders will receive 1 UBS share for every 22.48 CS shares they own. With CS shares still trading and declining in price there’s likely an arbitrage opportunity for risk-forward traders and investors looking for intriguing stocks to buy right now.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.