It’s difficult to say with any certainty whether the following stocks will crash and burn this July. But there are at least two factors that suggest the distinct possibility remains. This has led to the rise of bank stocks to sell.
For one, all of the shares below were exposed during the recent banking crisis. Investors did their due diligence following the collapses. They decided that each of these firms is among the riskiest banks that are publicly traded.
Further, the economy can hardly be described as healthy. We thankfully continue to avoid a recession outright, yet it’s clear that risks remain elevated. One unforeseen change could trigger real issues. In that case, the shares below will be amongst the first to decline and likely will decline the most.
PacWest Bancorp (PACW)
PacWest Bancorp (NASDAQ:PACW) was one of the worst-hit bank stocks in the aftermath of the banking crisis. It dropped from $28 to under $10 overnight on the fear that followed the collapse.
Then, it lost a bunch of money during the quarter. That net loss reached $1.21 billion as overarching fears caused panic that spread leading to a $5.7 billion decrease in deposits. The decreased deposits left PacWest Bancorp with less investment capital with which to seek a return. In turn, things got much worse as diminished trust in the banking sector did what it always does. This makes it one of those bank stocks to sell.
The company’s Venture Banking business was responsible for the bulk of the drawdown. $4.7 billion of the $5.7 billion decrease was attributable to that business. But that raises interesting questions for regular depositors who likely assume their community bank isn’t dipping its toe into risky ventures. That’s clearly not the case. Silicon Valley Bank was a likely culprit given its role and proximity to the epicenter of tech. Other, less obvious banks are similarly risky, PacWest Bancorp included.
Atlantic Union Bankshares (AUB)
Regional bank stocks took the brunt of the damage during the crisis, Atlantic Union Bankshares (NYSE:AUB) included. The company operates 109 branches and 130 ATMs throughout Virginia, Maryland, and North Carolina.
AUB stock held steady when the banking collapse first emerged. It wouldn’t be tested by the market until it released earnings in late April. One reason is that Atlantic Union Bankshares saw its interest income decrease by $10.7 million to $157.2 million during the quarter. Interest rates were still low during the first quarter of 2022 and wouldn’t be reflected until Q2. They were much higher in Q1 ‘23 after more than a half dozen successive rate hikes by the Fed. Thus, Atlantic Union Bankshares theoretically should have been able to derive more interest income, not less. This is why it’s one of those bank stocks to sell.
Non-interest income also fell drastically, from $24.5 million to $9.6 million in the first quarter. This has nothing to do with performance per se but it’s interesting to know that the bank paid an effective tax rate of 17% during the quarter. I know that’s less than I paid.
HomeStreet (NASDAQ:HMST) has seen its stock lose roughly 75% of its value in 2023. It isn’t that difficult to understand why once you dig a bit deeper into the financial statements of the firm. They show that the bank serving California, Oregon, Washington, and Hawaii has several problems that point to a contraction and inability to balance operations.
The cost of interest-bearing liabilities increased by 2.26% during the most recent quarter while the yield of interest-bearing assets increased by only 0.8% during the same period. That’s obviously the opposite of what HomeStreet would like to see, leading to an imbalance overall.
It reflected in net income that fell from $19.95 million to $5.05 million in Q1. HomeStreet is unlikely to see investor confidence increase based on all of these factors. That means share prices should remain low. All things considered, HomeStreet is a stock that investors should avoid.
On the date of publication, Alex Sirois did not have (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.