One man’s loss is another man’s gain, or so the saying goes. As the fallout from last month’s collapse of SVB continues to ripple through the marketplace, perhaps the saying has never been truer. Having been found to be horribly exposed to many of the same financial risks that took down SVB, First Republic Bank’s (NYSE: FRC) shares have been among the hardest hit of all those caught up in the maelstrom. While the panicked selling appears to have flatlined for now at least, there’s little to no activity on the stock’s bid, and it remains the better part of 90% lower than where it was before the SVB story broke.
Contrast this then to the shares of their banking peers First Citizens BancShares Inc (NASDAQ: FCNCA), who as of Thursday lunch time are sitting more than 30% higher over the time period. Did ever two paths simultaneously diverge more violently? The good news is for those of us who’ve been on the sidelines and have yet to find an opportunity amongst the volatility in banking, First Citizens' move north looks like it’s the start of a brand new trend. Let’s take a look at three of the biggest drivers behind it.
The top one is that First Citizens has agreed to buy SVB’s deposits and loans. This broke last week having gone through the rumor mill, and will carry a price tag of $56 billion which is a juicy discount from the $72 billion in assets to be acquired. Analyst Brady Gailey from Keefe, Bruyette & Woods reiterated his "Outperform" rating on the stock in the aftermath of the news, saying that he expects the deal to deliver a significant boost to both the earnings per share and tangible book value per share for First Citizens.
The second reason to be particularly bullish on First Citizens took shape yesterday, in the form of a double upgrade to the stock. This came from the folks at UBS, who themselves have also been affected by the fallout from SVB, specifically in the collapse of Credit Suisse. The team there moved their rating from a Sell straight to a Buy and wrote in a note to clients that "we view the balance sheet as more well positioned to handle a recession going forward given the low loss nature of the SIVB loan portfolio, which should result in a higher quality earnings stream".
They’re expecting First Citizens to trend higher and hit $1,232 in the coming months, which points to further upside of around 25% from current trading levels. This bullish optimism is echoed by the analytical tools on Marketbeat.com, namely the Consensus Analyst Rating which is currently at Moderate Buy.
And if all that wasn’t enough to convince you to back First Citizens over First Republic, consider simply the share price action. While First Republic’s stock might well experience a sharp rebound in the coming sessions as the stock’s RSI comes out of extremely oversold conditions, its First Citizens which is effectively setting higher highs on a daily basis right now. It doesn’t get more bullish than this, and there’s clearly a share price adjustment underway which is sending any and all remaining bears for the exit door.
First Citizens stepped forward while others stepped back from the toxic books of SVB and the market is handsomely rewarding them for it. We look forward with anticipation to seeing their boldness play out in the quarters ahead. For now, investors can confidently consider buying into one rejuvenated bank stock, while another seems destined to soon be trading in the single digits.