Signature Bank among Wells Fargo’s top mid-cap bank picks

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Bank stocks have fallen this year, with the KBW Nasdaq Bank stock index falling 25%.

But “banks in general, and mid-cap banks in particular, are in much better fundamental positions than you would assume from stock prices,” Wells Fargo analysts wrote in a commentary.

“First, higher rates do not mean [historically] high rates. And the balance sheet management opportunity for banks, even with a terminal federal funds rate of 3%, will be significantly better than when the funds rate was close to zero.

The federal funds terminal rate is where it will end up after the Federal Reserve finishes raising it. It is now within a target range of 1.5% to 1.75%.

“Second, credit is strong at banks due to weaker credit restructuring … and even tighter underwriting over the past two years,” the analysts said. “Furthermore, banks still have excess reserves.”

And third, “loan growth continues to accelerate due to commercial underinvestment in recent years,” the analysts said. “Based on our recent conversations with bank management, customers are still engaged and the pipelines are strong.”

Thus, analysts like stocks of mid-cap banks and name Signature Bank (SBNY) – Get the Signature Bank Report, SVB Financial (SIVB) – Get the SVB financial group report and Synovus Financial (SNV) – Get the report from Synovus Financial Corp. as their top picks. All three rate themselves as overweight.

Signature Bank

Analysts have a price target of $408 for the stock. This is more than double the recent quote of $177.20.

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“SBNY continues to experience sustainable loan growth due to expansion in recent years, and is also benefiting from positive reinvestment trends in the securities portfolio,” they said.

“While deposits fell seasonally in May, management still expects the quarter to be flat. … With approximately $29 billion of cash on the balance sheet, we are less concerned about total deposit growth in this moment… “

SVB Financial

Analysts have a price target of $810 for the stock. That’s double the recent quote of $403.

“SVB Financial is the most asset-sensitive of all banks, and growth in net interest income will occur to a significant extent whether or not the balance sheet continues to grow at this time,” they said.

“As management has said, there are still significant innovations in technology, and there are high levels of capital already committed to funds.” SVB has a strong exposure to private equity and venture capital.

Synovus Financial

Analysts have a price target of $65 for the stock. It recently traded at $35.84.

“SNV continues to benefit from its business in some of the fastest growing economies in the United States,” the analysts said.

It’s about “taking market share from the larger banks (which aren’t focused on the middle-market commercial customer), as well as reaping the gains from recent and proposed consolidation,” they said.

“SNV is implementing its longer-term plan focused on growing its commercial market share…”

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