Are bank stocks currently a wise investment?

During the past month, unrest at a few U.S. and European banks has raised concerns about the state of the global financial industry and caused bank stock prices to fall as alarmed investors watched the events unfold.

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Notwithstanding concerns about the banking sector, analysts told Trade Algo that there are some potential investing opportunities in bank shares, particularly those with Canadian names.

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CANADIAN DIFFERENCE

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The failures of Silicon Valley Bank or Signature Bank in the United States have brought attention to the relative stability of Canadian banks, according to equity analyst Steve Boland, general manager of diversified financials at Raymond James. Investors should take note.

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With fewer than 81 banks in Canada, authorities can keep a closer eye on them than there are hundreds of names to consider in the American banking sector, according to Boland.

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"Investors have been looking southward because there are many options, but perhaps it's time to look just at Canadian industry as a whole," Boland said in a telephone interview with Trade Algo.

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Boland contributed to a Raymond James research emphasizing the benefits of Canadian banks that was released on Tuesday. They include rules that ensure bank balances are better than in the United States and greater liquidity ratios, as well as a closer interaction with regulators.

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Although a run on deposits similar to the one that brought down Silicon Valley Bank is still possible, Boland said it currently appears unlikely because media coverage has convinced Canadians about the stability of the financial sector and banks are trying to report that they've not received a spike in worried calls from people trying to withdraw their money.

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In response to a bank crisis in the U.S. that he believes is unlikely to migrate north, Allan Small, senior financial advisor at Allan Small Financial Group, said that the Canadian bank stock selloff shouldn't be a deterrent since it's happening "for the wrong reasons."

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U.S. EXPOSURE

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John Zechner, the CEO of J. According to Zechner Associates, Canadian banks continue to be largely reliable investment options. But, he pointed out that Canadian banks looking to expand into the United States currently face riskier possibilities.

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They include First Horizon Corp., a regional bank whose shares have dropped to 40% below TD Bank's takeover offer as of this writing, and Bank of Montreal, which finalized a $16.3 billion acquisition of Bank of the West this year.

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Regional banks in the United States including Bank of the West and First Horizon are suffering as a result of the SVB and Signature Bank issues, according to Zechner. The confusion has increased skepticism regarding the viability of TD's plan.

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"(BMO and TD) both increased their exposure to regional banking, and more of the risk originates from regionals in the U.S.," Zechner said, adding that risk to both entities "appears to be short-term."

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A FEW OPPORTUNITIES IN THE U.S.

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Yet, some larger U.S. institutions have also benefitted, according to analysts, from the upheaval at regional banks.

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According to Zechner, large U.S. money center banks gain from terrified regional bank clients in the U.S. racing to shift their money elsewhere, making them a more appealing investment. They also have a more broad, insured deposit account, similar to banks in Canada.

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Since they had to place their money somewhere, "so many individuals just removed their money from the regionals," he added. "They stuck it with these larger players because they saw it as safety." They now have stronger balance sheets as a result.

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The price of the smaller banking concerns has decreased "for reasons that really don't have anything to do with their own type of business," according to Small, who also sees this as a good opportunity to acquire the major money center U.S. bank equities.

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Nothing, according to Small, "like a wonderful crisis to bring down the cost of some of these good grade labels." I've been putting money into them recently, and I'll keep doing so as long as they're still affordable.

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Given the volatility, Boland cautioned investors against investing in U.S. banks, though he predicted "good returns for the one that are reliable," once more mentioning Canada.

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Go north, he advised, if you don't want to become tired of worrying about American banks. "To us, you're getting everything that might be better than what's going on in the United States."