The Regional Banking Crisis of 2023
Early 2023 brought shades of 2008 back for investors as fear gripped the regional banking industry and stocks within the industry plummeted. The SPDR Regional Bank ETF (KRE) swooned ~30% during a two-week span in March last year. Several regional banks, such as NY Community Bancorp (NYCB), were caught flat-footed as their management teams failed to be flexible and assumed a bargain basement interest rate would persist. However, as inflation spiked to 40-year highs it became clear that Jerome Powell and the Federal Reserve would be forced to raise interest rates rapidly. Failure to plan and lack of foresight would result in the largest banking crisis since 2008, leading to the demise of Silicon Valley Bank, First Republic Bank, and countless other banks.
Will The Regional Bank Rebound Continue in 2025?
Though regional banks are still well off their highs, the KRE ETF is up a robust 36% over the past year.
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Below are three reasons regional bank stocks will be higher in 2025, including:
1. Less Regional Banks Means Less Competition
2023 saw the most U.S. bank failures since 2008, with more than 140 banks going under. With far fewer banks, competition is bound to be less cutthroat moving forward, and the saying “less is more” applies. Furthermore, the banks that survived are better managed and proved they were able to weather the storm.
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2. Regional Banking Valuations are Cheap
After the dramatic pullback in regional banking stocks, valuations are again cheap for several banking stocks. For instance, two of the largest KRE components, Citizens Financial Group (CFG) and Regions Financial (RF), sport their lowest price-to-sales ratios since the middle of the COVID-19 pandemic in 2020.
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3. Rate Cuts are Bullish for Banks
On Wednesday, Jerome Powell and the Federal Reserve will cut interest rates by at least 25 bps. Lower rates are seen as a positive for banks because they lower their borrowing costs from the Federal Reserve and other financial entities, allowing banks to offer more attractive rates to customers.
Bottom Line
Though regional banks rebounded nicely in 2024, the future looks bright. Less regional banks mean less competition. Further, valuations are the cheapest they have been in years and rate cuts are sure to be a bullish catalyst for the sector.
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See Stocks Now >>Regions Financial Corporation (RF) : Free Stock Analysis Report
New York Community Bancorp, Inc. (NYCB) : Free Stock Analysis Report
Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report
SPDR S&P Regional Banking ETF (KRE): ETF Research Reports
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
