In a Tumultuous Year for Banks, These Two Stocks Were the Big Winners
In 2023, the banking industry faced its biggest crisis since the Great Recession, as four major banks — Silicon Valley Bank, Signature Bank, First Republic, and Silvergate Bank — collapsed. Another even larger bank, Credit Suisse, was merged into UBS Group (NYSE:UBS) in a deal brokered by Swiss regulators.
However, the crisis went far beyond those banks, as the entire industry crashed. As a result, the federal government stepped in with several initiatives to support the industry, particularly those banks that were teetering on the edge of collapse.
The large mega banks and super regional banks managed to navigate the crisis fairly well, as they had adequate liquidity and benefited somewhat from a flight to safety among jittery banking customers. However, the smaller regional and community banks had a more difficult time trying to stem deposit outflows and maintain liquidity.
As the year went on, things started to stabilize, and by the fourth quarter, beaten-down bank stocks were surging. Over the past three months as of Jan. 4, bank stocks are up about 26%.
Customers Bancorp posts top return
The strong fourth quarter provided a much-needed lift for bank stocks, but the industry still finished the year in the red. The KBW Nasdaq Bank Index, which tracks the 24 largest publicly traded banks, is down 6.9% over the past year as of Jan. 4. The KBW Nasdaq Regional Banking Index has done marginally better, falling 5.2% over the past 12 months.
There was a wide dispersion of returns among the more-than 300 bank stocks last year, with some down more than 75%. However, on the high end of the spectrum, some bank stocks were actually up that much — or more.
The top performer over the past year was Customers Bancorp (NYSE:CUBI), which is up about 94% over the past one-year period as of Jan. 5. The West Reading, Penn.-based bank is one of the leading banks for the cryptocurrency industry through its blockchain payments network, which facilitates crypto transactions for its large, institutional cryptocurrency clients.
As such, Customers Bancorp benefited from the banking crisis as two of the leaders in that space, Silvergate Bank and Signature Bank, both failed during the crisis. As a result, significant shares of those banks’ customers and deposits flowed to Customers Bancorp — at a time when most banks were struggling to attract deposits.
In the third quarter, the firm had $18.2 billion in deposits, up 1.4% from the second quarter of 2023 and up 3.8% year over year.
Customers Bancorp also bolstered its book of business by acquiring a $631 million venture-banking loan portfolio from the Federal Deposit Insurance Corporation (FDIC) at a discount in June. The loan portfolio had been in receivership from Signature Bank, Reuters reported.
The other big winner among banks in 2023 was First Citizens BancShares (NASDAQ:FCNCA), which saw its stock return roughly 85% over the past year as of Jan. 5.
First Citizens, based in Raleigh, N.C., also got a major boost due to the banking crisis as it acquired most of the assets of the failed Silicon Valley Bank from the FDIC, which had set up a bridge bank.
The acquisition transformed First Citizens, as the $110 billion in assets from the former Silicon Valley Bank almost doubled its size, and it is now the 15th-largest U.S. bank with about $214 billion in assets. The acquisition also made First Citizens one of the leading banks for startups and entrepreneurs in Silicon Valley and other innovation centers around the U.S.
Looking ahead
Both of these banks were transformed by the banking crisis and should continue to thrive in 2024. Both trade at reasonable-to-low valuations and have considerable growth catalysts as leaders in their respective niches that should drive them higher, particularly as the interest-rate environment improves.
They are both set to release their fourth-quarter earnings this month, so interested investors should keep an eye out for these reports for more visibility into the year ahead.
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