Does This Regional Bank Rally Have Legs? Here Are The Top Stock Picks From BofA

PacWest Bancorp PACW rallied another 6% on Monday after the bank slashed its dividend to 1 cent per share on Friday and reassured investors that its business is "fundamentally sound." The rally in other bank stocks that started on Friday ran out of steam on Monday, and some investors are skeptical that bank stocks may soon resume their downward trend.

No Bullish Catalysts: Bank of America analyst Ebrahim Poonawala said Monday that, while the worst of the banking crisis may be over, there are no bullish catalysts ahead for bank stocks that give investors confidence in the recent rally. In fact, investors anticipate further margin pressures, a rising regulatory burden and a lackluster capital return outlook for regional bank stocks.

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"Investors appear most skeptical on mgmt outlooks for deposit betas. We expect clarity as early as end of 2Q23 or by the time banks report 2Q results (mid-July) assuming no more Fed rate hikes," Poonawala said.

How To Play It: Poonawala said policymakers have dropped the ball in providing regulatory clarity that could reassure investors that there is limited risk of further deposit flight. Some investors have called for a ban on short selling bank stocks, but Poonawla said it's unclear whether a short selling ban would have a lasting impact.

He noted the recent sell-off in bank stocks has created attractive value opportunities for investors willing to stomach the volatility. His top stock picks among regional banks are M&T Bank Corp MTB, Fifth Third Bancorp FITB, New York Community Bancorp, Inc. NYCB and East West Bancorp Inc EWBC.

Benzinga's Take: After a big close to last week and a strong opening on Monday, the SPDR S&P Regional Banking ETF KRE had pulled back sharply in midday trading and was back in the red for the day. Incredibly, the KBE bank ETF is down more than 40% overall in the past six months while the SPDR S&P 500 ETF Trust SPY has rallied nearly 8%.

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