As the banking crisis persists, bank stocks continue to trade at depressed prices. With this, many investors are waiting for Warren Buffett to step in and save the day.
In recent years, Buffett has lowered Berkshire Hathaway’s (NYSE:BRK-A, NYSE:BRK-B) exposure to the sector.
However, investors are hoping Buffett could potentially increase Berkshire’s banking stock exposure once again. These hopes are largely based on Berkshire’s large purchases of preferred shares in Goldman Sachs (NYSE:GS) and Bank of America (NYSE:BAC) in past financial crises.
Among scores of hard-hit large and regional bank stocks, here are seven that Buffett may ultimately lend a helping hand.
Ally Financial (ALLY)
When it comes to Warren Buffett and big banking stock investments, Ally Financial (NYSE:ALLY) is likely a name that comes to mind. Berkshire owns around 10% of this automotive-focused bank. There have also been rumors that Buffett’s firm would acquire this financial institution outright.
As InvestorPlace analyst Louis Navellier has argued, there is plenty of evidence that suggests Berkshire isn’t interested in making this bank a wholly owned subsidiary. Still, if the auto loan crisis worsens, it’s easy to see Buffett stepping in and making another ALLY stock investment. Just not in the common shares.
If a true crisis with Ally emerges, I can see Berkshire making a big preferred stock investment in Ally, on very favorable terms (high coupon rate on the preferred stock with warrants thrown in as part of the deal). That said, as a worsening crisis will undoubtedly send ALLY sinking, follow Navellier’s lead and stay away.
While Ally is still far from crisis mode, one can argue that Comerica (NYSE:CMA) is much closer to reaching that point. This regional bank’s shares have dropped by more than 50% since the banking crisis first took shape in early March.
CMA stock has continued to drift lower as concerns over deposit declines and unrealized loan losses outweigh positives such a revenue and earnings beat for the preceding quarter. Comerica is one of several large and mid-sized regional banks that ratings firm Moody’s downgraded last month.
These institutions are especially vulnerable, as the commercial real estate crisis could worsen their situations further. If Comerica turns into a situation akin to PacWest Bancorp (NASDAQ:PACW), the bank could end up going hat in hand to deep-pocketed investors.
PNC Financial (PNC)
Operating across 27 U.S. states, PNC Financial (NYSE:PNC) is what’s known as a super regional bank. Too small to be a big bank, yet at the same time too large compared to other regional banking names.
Still, that hasn’t stopped PNC stock from falling out of favor. Shares have tumbled by more than 28% since March. However, it is possible that the market has overreacted with its derating of PNC. As InvestorPlace Markets Analyst Thomas Yeung argued earlier this month, the bank’s national footprint may lower the chances it becomes the next First Republic (OTCMKTS:FRCB).
Hence, shares could make a big recovery once current industry headwinds pass. PNC may not need a Buffett bailout, but Berkshire (which owned the stock until late 2020) could always decide to re-enter a position.
Charles Schwab (SCHW)
Charles Schwab (NYSE:SCHW) is best known for its stock brokerage operations, but it makes sense why investors have had serious banking crisis-related concerns about the firm. Schwab’s banking operations are sitting on heavy unrealized bond losses.
Rising interest rates have also resulted in clients moving excess cash out of their brokerage accounts in order to take advantage of savings accounts elsewhere offering higher yields. With this trend likely to have a serious impact on future earnings, SCHW stock has fallen by more than 35% since early March.
To shore up investor confidence, Charles Schwab could really use the Warren Buffett “seal of approval” right now. However, I wouldn’t count on Berkshire announcing it has purchased a large block of SCHW shares anytime soon. Trading for 13.5 times earnings, the stock is likely fairly priced at best, so not exactly the type of “wonderful business” that Buffett likes to buy.
State Street (STT)
State Street (NYSE:STT) is yet another major financial services firm caught up in the crisis. Like with Schwab, news of declining deposits has placed considerable pressure on shares in recent months.
As a result, STT stock has plunged from around $90 per share to around $69 per share today. However, while Schwab may be fairly priced despite deposit headwinds, the situation may be different with State Street. Following the pullback, shares trade for just 9.5 times earnings.
Furthermore, despite concerns about falling net interest margin, analyst forecasts still call for State Street to report solid earnings growth. By 2025, earnings per share (or EPS) could come in at $9.86. Not bad for a $69 stock. Buffett may not be fully bullish on bank stocks right now, but if the dust starts to settle, he may consider undervalued, oversold names like this one.
Truist (NYSE:TFC) is another super regional bank that has been hammered since March. In fact, with its drop from the mid-$40s to the high-$20 range, the selloff with TFC has been more dramatic than with other super regional bank stocks like PNC.
After falling by around 40%, TFC stock today trades at a dirt-cheap 6 times earnings, and sports a forward yield of 7.62%. As a Seeking Alpha commentator has recently argued, this bank is far from stressed. At least, based on the bank’s loan-to-deposit (or LDR) ratio. This bank has a lower LDR ratio than its peers.
Instead of being a value trap, Truist may represent deep value at current prices. Similar to State Street, if some of the uncertainty clears up about banking and Buffett decides to increase Berkshire’s bank stocks exposure, TFC may just well be a name he considers.
U.S. Bancorp (USB)
With Berkshire Hathaway selling nearly all of its stake in 2022, U.S. Bancorp (NYSE:USB) may appear at first to be one of the bank stocks least likely to receive some support from Buffett.
However, while Buffett may not be looking to buy more USB stock on the open market anytime soon, this could be one of the top contenders to receive a preferred stock investment from Berkshire if its financial condition deteriorates further. As I wrote recently, there is a strong chance the situation with U.S. Bancorp worsens from here.
Why? According to a short report issued by Holdco Asset Management, if this bank has to start counting certain unrealized loan losses when calculating its capital ratios, it may need to raise more capital. Given the past investment and relationship, Berkshire looks like a likely provider of potential future capital infusions. On terms favorable to Berkshire, of course.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.