Sam Goldfarb on how bank stock investors are buying the dip

A growing number of investors are betting on a rebound in the banking sector, wagering that regional lenders are in much better condition than many initially feared after the collapse of Silicon Valley Bank.

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One of SVB’s problems was that it faced large unrealized losses on its portfolio of government-backed bonds thanks to last year’s jump in interest rates.  But no other major bank currently faces nearly the same amount of losses relative to its size, these investors point out.  In addition, such bonds are still essentially guaranteed to be paid in full when they mature, and banks can now borrow against them from the Fed at their face value—making them worlds apart from the toxic mortgage assets that sank lenders in the late 2000s.

~ Sam Goldfarb, "To Some Investors, Banks Look Like Bargains; Some see ‘once-in-a-decade’ buying opportunity after recent turmoil," The Wall Street Journal, March 28, 2023