This just in from a colleague of mine. I agree with him. See my comments below. — Larry
Banking financial services stocks have taken a beating in the last year. The diversified banks group within the S&P 500 Index have fallen 54% in the last 12 months alone. This presents a unique opportunity for investors who don’t normally shy away from risky opportunities.
While there is definitely a banking crisis, this is not to say all banks are in trouble. Many banks did not engage in the risky behavior that was characteristic of Citibank, Merrill Lynch and Lehman Brothers amongst others. There are 119 publically traded banks in the U.S. with market capitalizations of $250m or more, of which 73 have a Tier 1 capital ratio of 10% or more, more than double the 4% required by regulators. Of these 73 banks, 17 have a risk-based capital ratio of more than 16%, again twice the amount required by regulators.
Three small-cap banks with market capitalizations of less than 1 billion that John Dorfman of Thunderstorm Capital likes include: Republic Bancorp Inc. (NASDAQ:RBCAA), SVB Financial Group (NASDAQ:SIVB) and Washington Federal Inc. (NASDAQ:WFSL). For those more interested in large-cap banks, Dorfman suggests BB&T Corp. (NYSE:BBT) which has a capitalization of $10bn.
My Opinion: These 17 banks look very good on paper and are all trading at significantly discounted values. Their share prices have fallen by half on average in the last 12 months, and several of them are trading at a price-to-book value ratio of less than 1, making the sum of their shares worth less than the book value of their assets.
The current banking crisis can’t and won’t last forever. These small- to mid-cap banking companies are slated for share value appreciation once investors re-enter the financial services sector.
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