As The Bank Crisis Appears Contained, UBS Expects These Bank Stocks To Rise

As investors at UBS are expecting the failure of Silicon Valley Bank to fade from their minds, several bank stocks appear to be primed for a rebound in April.

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It appears the Federal Reserve's latest data indicates that lending to the central bank decreased slightly last week. This suggests that the liquidity issues that led to the collapse of Silicon Valley Bank may have been alleviated. In a note that was written to clients, UBS analyst Erika Najarian stated that bank stocks could rebound next year.

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Whenever a bad accident occurs, a lot of rubberneckers tend to gather in banks, and we sense that there is a greater than usual level of market participation (both long and short). We continue to receive questions regarding more extreme scenarios regarding liquidity and deposit flight, despite the fact that we believe regularly involved hedge fund investors have understood that contagion risk seems limited. Therefore, Najarian believes that the stage is ripe for an earnings rally.

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There may be a potential for a "clearing event" in shares of regional banks during the upcoming earnings season since many of these stocks have been falling sharply since the collapse in 2008, said Najarian.

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In the UBS report, UBS highlighted two stocks that are undergoing significant declines in March, Comerica and Western Alliance, which have declined approximately 38% and 52%, respectively.

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There have been a number of banks headquartered on the west coast that have been particularly hard hit by the sell-off since they fear that they are more exposed to risky customers than banks located in other regions of the country like Western Alliance or First Republic.

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Western Alliance will likely release its results around the same time as Comerica will report its latest earnings on April 20, and Comerica is set to report its latest earnings on April 20.

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There is, however, a caveat that Najarian made as he cautioned that the surging demand for credit might have found a ceiling, given that the regional banking crisis had raised concerns, over the past few months, about the sector's future viability.

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Regional banks suffer from a lack of confidence in consensus estimates. According to Najarian, banks with $100-700 billion assets will have to cap their P/E multiples due to concerns about net interest income revisions in the short term (as many assume the mega caps benefited the most from deposit reallocations) and tighter regulations in the long run.

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According to Najarian, Bank of America's relative valuation to rival JPMorgan Chase could cause it to outperform even past earnings, even in the face of more regulation; the biggest banks will benefit the most from this crisis.