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5 Bank Stocks to Buy on Jerome H. Powell Testimony

Zacks

President Trump’s Federal Reserve chairman pick, Jerome H. Powell confirmed that certain bank regulations need to be rolled back. Easing of banking regulations will give more power to banking authorities and spur lending activities.

Powell also hinted that the chances of a rate hike next month are growing. This development also helped banks’ shares move north as it will drive profits for such companies. Hence, investing in sound bank stocks seems judicious.

Powell Favors Relaxed Bank Regulations

Powell, in his Senate confirmation hearing on Nov 29, said that the Dodd-Frank Act strengthened the financial system. Such an Act was passed during the 2008 financial crisis. But, he believes that certain areas of the Act should be eased, such as regulations pertaining to banks. These regulations were baseless and had limited banks’ operational flexibility for a considerable period of time.


Banks, moreover, will be in a position to maintain higher levels of capital reserves in exchange of less stringent regulations. With more capital in the economy, lending will increase, which bodes well for banks. In fact, Powell’s comments encouraged several GOP senators, who have argued that for years Dodd-Frank impeded economic growth by making bank loan procurements tougher.

Case for Rate Hike in December ‘Coming Together’ — Powell

Powell, who has served as Fed governor since 2012, added that the case for a December rate hike has strengthened on an upbeat labor market. While payroll gains averaged a healthy 162,000 over the past three months, jobless rate fell to 4.1% in October as labor conditions returned to normal following the hurricane-weakened September.

Currently, the benchmark lending rate is in a range of 1% to 1.25%. A December rate hike will result in the third rate hike this year and the fifth tightening of policy since mid-2009. Wall Street is currently pricing an almost 92.8% chance of a rate hike by the end of the year, per CME Group data.

Hike in interest rates, in turn, boosts bank profits. It increases the spread between what banks earn by funding longer-term assets, such as loans, with shorter-term liabilities. The spread between long-term and short-term rates also expands during interest rate hikes because long-term rates tend to rise faster than short-term rates.

Bank Stocks Gain Traction

As loosening up of regulations and higher rates bode well for lenders, banks stocks scaled north. Lest we forget, Trump’s initiative for a big tax cut overcame a potential obstacle. A Senate panel recently approved such measure despite the voicing of concerns by a handful of Republican members. Banks face a high tax burden, which makes them gain substantially when tax rates go down.

As per KBW estimates, JPMorgan Chase & Co. JPM, Wells Fargo & Co WFC and Bank of America Corp BAC will see a 20% or more hike in profits if the corporate tax rate is cut to 20%. Thus, shares of such banking giants gained around 3%. In the last one-year period, all of these companies registered double-digit growth.

5 Solid Buys

Given such positive trends, investing in fundamentally-sound banking stocks seems prudent. We have, thus, selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

First Financial Bancorp FFBC — a Zacks Rank #2 company — operates as the bank holding company for First Financial Bank that provides commercial banking and other banking, and banking-related services to individuals and businesses in Ohio, Indiana, and Kentucky. The Zacks Consensus Estimate for current-year earnings rose 1.9% over the last 60 days. The company’s expected growth rate for the current year is 8.9%, higher than the industry’s projected gain of 8.5%. The company’s earnings are set to grow 17.9% in 2018.

Eagle Bancorp, Inc. EGBN operates as the bank holding company for EagleBank that provides commercial and consumer banking services, primarily in the United States. Currently, the company has a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings increased 2.5% in the last 60 days. Meanwhile, Eagle Bancorp’s projected growth rate for the current year is 16.4%, higher than the industry’s 10%. The stock’s earnings are likely to increase 8.5% next year.

First Bancorp FBNC operates as the bank holding company for First Bank that provides banking products and services for individuals and small to medium-sized businesses primarily in North Carolina and northeastern South Carolina. First Bancorp has a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings rose 9.7% over the last 60 days. First Bancorp’s expected growth rate for the current year is 52.9%, way higher than the industry’s projected gain of 7.1%. The company’s earnings are likely to grow 16.9% in 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.

First Foundation Inc. FFWM provides personalized financial services to individuals, businesses, and other organizations in the United States. It operates through two segments: Banking, and Investment Management and Wealth Planning. The company has a Zacks Rank #2. The Zacks Consensus Estimate for current-year earnings rose 3.2% in the last 60 days. First Foundation’s expected growth rate for the current year is 36.4%, higher than the industry’s estimated rally of 12.9%. The company’s earnings are likely to grow 22.3% in 2018.

CoBiz Financial Inc COBZ provides a range of banking related services through its subsidiaries, CoBiz Bank (Bank). The stock has a Zack Rank #1. The Zacks Consensus Estimate for current-year earnings rose 6.6% over the last 60 days. CoBiz Financial’s expected growth rate for the current year is 15.1%, higher than the industry’s projected gain of 11.1%. The company’s earnings are expected to grow 18.6% next year.

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