The $SPDR S&P 500 ETF (SPY.US)$ stabilized Monday, but extreme volatility among U.S. regional banks is ongoing in the wake of the failures of $SVB Financial (SIVB.US)$, $Signature Bank (SBNY.US)$ and $Silvergate Capital (SI.US)$.
While bank stock investors are hoping the worst of the contagion fears are now over, Bank of America analyst Ebrahim Poonawala cut his price targets for a number of bank stocks and said the environment for regional banks will be difficult for the foreseeable future.
Key Price Target Cuts: Poonawala cut his price target for two dozen bank stocks, including several Underperperform-rated stocks. Among his Underperform-rated names, Poonawala cut his price target for $Ally Financial (ALLY.US)$ from $28 to $25, his target for $PNC Financial Services (PNC.US)$ from $150 to $132, for $Zions Bancorp (ZION.US)$ from $50 to $38 and for $First Hawaiian (FHB.US)$ from $24 to $21.
Poonawala also cut targets for other bank stocks that he sees as potential buying opportunities for investors. Among Buy-rated stocks, Poonwala cut his price target for $KeyCorp (KEY.US)$ from $20 to $17, for $New York Community Bancorp (NYCB.US)$ from $11 to $8, for $Fifth Third Bancorp (FITB.US)$ from $38 to $34 and for $Citizens Financial (CFG.US)$ from $47 to $39.
Why It Matters: In the coverage note, Poonawala said bank stocks may bounce at some point on policy headlines or macroeconomic data, but the relief rally won't change the difficult environment.
"Our cautious view on the sector is informed by our opinion that higher-for-longer interest rates pose significant risk to the outlook for bank EPS in the form of increased pressure on net interest margins, slowing loan growth and worsening credit quality," Poonawala said.
He prefers investors looking for banking industry exposure rotate out of regional banks and into diversified mega-cap banks.
Benzinga's Take: Investors can take Poonawala's advice and set up a banking pair trade by going long the $Financial Select Sector SPDR Fund (XLF.US)$ to maintain diversified exposure to large-cap banks and pairing it with a short position in regional banking ETFs $Powershares Exch Traded Fd Tst Ii Kbw Bk Port (KBWB.US)$ or $Spdr Series Trust S&P Regional Bkg Etf (KRE.US)$.
