Regional bank buying opportunities

Regional banks bounced back on Friday following what was a volatile week for the sector. Shares of Pacwest Bancorp (PACW) led the charge, closing up over 81%. KBW's Head of U.S. Bank Research Christopher McGratty joined Yahoo Finance's Seana Smith and Akiko Fujita to discuss the latest in the banking crisis. "We know that we will emerge from this crisis. We always do." says McGratty. When talking about how long it could take to restore confidence in the regional banks, McGratty said "what they don't want to do is create another wave of failures. This is not a capital problem, this is a confidence problem."

When it comes to buying opportunities, McGratty says "we are neutral on the group," though one bank where he sees potential upside is New York Community Bancorp (NYCB). "We upgraded that stock after they did the Signature deal. They were paid multiple billions of dollars to take it off the FDIC's hand," adding that their "balance sheet is in great shape."

Another bank that McGratty is keeping tabs on is East West Bancorp, Inc. (EWBC) due to its capital position. "They've been waiting for moments like this to deploy that capital, I don't know if it's the next six months, but this is a balance sheet that's really, really well positioned." East West finished Friday in the green, up nearly 7%

You can check out the full conversation here

Key Video Moments

00:00:10 Potential regional banks to invest in

00:00:50 Outlook on East West Bancorp

00:01:30 How Long could it take to restore confidence in the banks?

Video Transcript

AKIKO FUJITA: Are there any regionals that you're particularly bullish on? I mean, if you are brave enough to get in, even after the kind of sell off that we saw this week, are there potential opportunities on the back of that?

CHRISTOPHER MCGRATTY: Yeah, there's always opportunities. We are neutral on the group. So we're being pretty selective. But I would say-- I would give it to you like this. New York Community, which is the bank that we've talked about before with you-- we upgraded that stock after they did the Signature deal. They bought Signature from the FDIC. They were paid multiple billions of dollars to take it off the FDIC's hand.

So they immediately grew tangible book. That's a stock that had a great quarter. The stock was up very, very nicely last week, as recently. And so that's a stock with a 7% yield, trading at book value. And the balance sheet is in great shape. You know, one of the names we've talked a lot about is Western Alliance. That is your deep value play. That's 70% of tangible book. Very volatile stock. So those are two.

And then in between, we really like East West. East West is a bank in California. It's about $60, $65 billion in assets. They have a tremendous amount of capital. Now, they've been building capital over the last 15 years, following the financial crisis. This is a stock that trades just above tangible book. They've got 13% common equity tier 1. They do not have the bond loss problem that others do. And they've been waiting for moments like this to deploy that capital. I don't know if it's in the next six months. But this is a balance sheet that's really, really well positioned.

SEANA SMITH: Chris, despite a lot of the reassurance that we got from some of the big bank CEOs, this week despite what we heard from Powell investors, still clearly very nervous, very worried about what has been playing out within regionals. How long do you think it's going to take to restore that confidence?

CHRISTOPHER MCGRATTY: It'll take time. We know that we will emerge from this crisis. We always do. I think investors are really trying to identify when. When is the regulation-- when are the regulators and the government going to step in? What is their max pain point from a bank perspective?

Because what we're seeing now is we're seeing this spread and this contagion fear really just permeate the market. And what they don't want to do is create more of an issue. Because the banks have great balance sheets. They have a lot of capital. They have a lot of liquidity. The deposits have stabilized. And what they don't--