According To A Thorough Review Of Banks By Piper Sandler, These Are The Ones To Buy When The Price Drops.

While it will take time for the effects of the ongoing banking crisis to manifest, Piper Sandler has names for investment to start sifting through the rubble.

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Despite the turbulence that followed the failure of Silicon Valley Bank, the most recent remarks from Treasury Secretary Janet Yellen guaranteeing additional government support if necessary increased investor optimism. The stock market rose on Tuesday.

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Even so, the sector will continue to be burdened by banks' struggles with stricter lending requirements and growing expenses.

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"While it is difficult to predict the ultimate regulatory cost burden, for example, we approximate the future cost of FDIC insurance coverage on all deposit accounts to be 3%-4% per year in our recent note here," wrote a group of Piper Sandler analysts led by Nathan Race in a note. "We believe a likely prevailing income impact for the year is an acceleration in upward financing cost pressures."

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Yet, according to Piper Sandler, some banks with excellent deposit and liquid characteristics might assist investors in finding a safe harbor. The company discovered banks that were in the highest four of outperformers going into the last two raising rates in 2015 and 2019. The firm anticipates two additional rate hikes of 25 basis points in the first half of 2023.

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"We found that institutions in the highest four of lowest IBL and IBD betas heading into the final two rises last cycle (4Q15 to 1Q19) underperformed the average bank by >400 bps up up to the initial Fed rate drop in July 2019," the paper said. "Assuming two further 25 bps Fed rate hikes as a base scenario in 1H23."

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The following are three mid-cap bank stocks with overweight ratings from Piper Sandler:

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The analysts added SouthState Corporation to their list, noting that the bank's "strong low-cost, core deposit base" will allow it to beat competitors. The stock is 1% lower in 2023 and has fallen 6% this month.

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According to the paper, "the bank has managed its balance sheet prudently, keeping higher liquidity than peers, being a little more careful in regard to additional securities holdings, and growing lending at a solid high-single digit rates over time."

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Even though SSB's P/E multiple has increased relative to peers given its 20% YTD outperformance, it continued, "We continue to see stocks of SSB as a safer investment, even though near-term loan growth may stall."