PreMarket Prep Plus: Peter Winter Talks Bank Picks, The Fed On 'Wednesdays With Wedbush'

On “Wednesdays With Wedbush” on PreMarket Prep Plus, Peter Winter, managing director of regional banks at the research firm, was this week's guest. 

Winter's Take On The Fed: Winter was asked to give his perspective on next week's Federal Reserve Bank meeting and the implications for the banking sector. He discussed the more “hawkish tone” coming out of the Fed and as a result said he has altered his projections for the increase in interest rates over the next two years.

First of all, he expects the Fed to end its bond-buying in March as opposed to June. Following the completion of that phase of tapering, “it will set the stage for the gradual raising of rates.”

He has been monitoring the dot-plot to identify the pace of the tightening.

At this time, he is now forecasting not one but two rate hikes in 2022 and three or four rate hikes in 2023.

Steepening Of The Yield Curve: With banks being so asset sensitive, it makes them “well-positioned” for a gradual rate hike, Winter said.

"With the banks sitting on so much excess liquidity from rapid deposit growth, they can switch the excess over to higher-yielding loans or securities."

In addition, with the slowdown of the stimulus, the deposit growth will abate and translate into loan growth, he said. 

Texas Banks: In Winter's area of coverage, he focuses on banks located in the state of Texas.

When posed the question of whether a majority of Texas banks are too reliant on the price of crude oil if it retreats from its current level, Winter responded by saying that Texas banks have become much more diversified in terms of energy lending.

He cited most of the major banks only having 5% loan exposure to the energy sector as opposed to a much higher percentage during the downturn in oil during the 1980s.

In addition, the Texas economy has been growing at a higher rate than the national average, and that has been a boon to the bottom line, he said. 

Winter's Top Pick: From his area of coverage, Winter was asked if had a particular favorite and that was Citizens Financial Group Inc CFG for a few different reasons.

The first one is the bank is “very asset sensitive and an increase in rates of 100 points would drive net interest income roughly 10%.”

More importantly, they are in the process of closing three acquisitions: JMP Securities to bolster capital markets; bringing in $9 billion in deposits from HSBC; and Investors Bancorp, which brings in 1 million new customers from the New York area.

In his opinion, these acquisitions will allow the bank to offer a wider array of products and services while reducing overall expenses.

The combination of the acquisitions being accretive to earnings as well as trading at a discount to the group makes it an attractive investment, he said.