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© Reuters. Western Alliance UBS' top mid-cap bank pick as exposure to tech/innovation deposits 'manageable'
By Sam Boughedda
Following the carnage that followed the collapse of SVB, UBS has initiated coverage of 19 mid-cap banks in the U.S., with Western Alliance Bancorporation (NYSE:WAL), New York Community Bancorp (NYSE:NYCB), and Webster Financial (NYSE:WBS) their highest conviction buys.
"Our PTs suggest 55% median upside potential on our Buys and 6% median downside on our Sells," UBS analysts wrote in a note to clients on Wednesday.
UBS' highest conviction sells include First Citizens BancShares Inc (NASDAQ:FCNCA), Texas Capital Bancshares (NASDAQ:TCBI), and Cullen/Frost Bankers (NYSE:CFR).
"We are focused on two items, both of which we expect to be negatively impacted in a higher-for-longer environment: funding and credit," the analysts added. "We think consensus is behind the eight ball on deposit growth and mix through 2024, both of which will weigh on NII revisions despite potentially higher Fed Funds. We also model for a mild recession in 2024E, which is not in consensus and will potentially be worse the longer rates stay higher. We are 7%/6% below consensus on 2023E/2024E EPS, with worse funding/credit as primary drivers."
The firm's top buy is Western Alliance, as they view WAL's exposure to more volatile tech/innovation deposits as manageable and "believe the company's credit profile is fundamentally misunderstood."
"We are modeling for 2024E rate cuts, and as a result think NYCB is a name to own here, given its liability-sensitive balance sheet/mortgage operations," said the analysts.
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