What now
Shares of many bank stocks rallied this week after being sold off heavily last week. Banks got a lift along with the broader market on news that debt ceiling discussions were progressing, but there was also industry-specific and company-specific news.
Shares of the credit card lender Capital One Financial(NYSE: COF) traded more than 11% higher for the week as of noon Thursday, according to data from S&P Global Market Intelligence. Meanwhile, shares of PacWest Bancorp(NASDAQ: PACW) traded nearly 36% higher, while shares of KeyCorp(NYSE: KEY) were up roughly 10% on the week so far.
So what
The big news for Capital One came earlier this week when it got a big vote of confidence from Warren Buffett, whose company, Berkshire Hathaway, disclosed in a regulatory filing that it had taken a new stake in the company, purchasing more than 9.92 million shares, which are currently valued at more than $953 million.
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Capital One's stock has been under some pressure for most of the last year, as investors worry about what loan losses in the portfolio might look like if there is a severe recession, so the new stake by Berkshire is certainly a good sign. Michael Burry's company, Scion Asset Management, also scooped up shares of Capital One and PacWest in the first quarter.
Bank stocks also seemed to benefit from an update from Western Alliance Bancorporation(NYSE: WAL) this week, which, along with PacWest, has been one of the more-pressured stocks since the banking crisis began. Western Alliance said that deposits of $9.4 billion as of May 9 were up $1.8 billion since the end of the first quarter and $600 million higher for the week between May 2 and May 9. The bank also said that 79% of its deposits are now insured by the Federal Deposit Insurance Corporation.
Markets also seemed to be benefiting from progress on raising the debt ceiling, as the government gets potentially closer to defaulting on its debt on June 1.
"I see the path that we can come to an agreement," House Speaker Kevin McCarthy recently told media outlets.
While most experts believed that lawmakers would ultimately reach a deal on the debt ceiling, due to the damage that defaulting would do to the broader economy, markets had grown jittery as the deadline approached.
Now what
I really viewed the intense sell-off of bank stocks last week as indiscriminate selling that wasn't driven by any new information, which is why I think it didn't take much to get bank stocks moving this week.
Ultimately, I think KeyCorp and Capital One present good buying opportunities at these levels. KeyCorp seems to have been clumped in with the broader sell-off of super-regional banks, while Capital One has faced concerns about how credit quality will hold up during a recession. But with both trading around their tangible book value (or net worth), I think a lot of the ongoing fear in the sector has been priced in.
PacWest is a little more difficult to gauge. The stock is now heavily discounted, so if it can get through the near-term volatility, then there could be a lot of upside. But there's also a wider margin for error, so it's riskier. If you invest, be prepared to deal with more volatility in the near term.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Western Alliance Bancorporation. The Motley Fool has a disclosure policy.
