Street Talk

Banks with exposure to the oil and gas sector have seen their stocks underperform the bank index as oil prices have plunged this year, raising the specter of increased defaults. That sector is unlikely to see relief any time soon. In the episode, Tom Watters, managing director and sector lead oil & gas at S&P Global Ratings, discussed the outlook for oil prices, how this downcycle compares to prior downturns and past bank redetermination periods. He also said oil and gas companies will have a hard time tapping the capital markets or attracting outright acquirers outside of bankruptcy.

The Street remains concerned that banks could have a hole in their balance sheets but even if dire outlooks are realized, the industry's capital levels should remain quite strong. In the episode, members of the investment community discuss current bank stock valuations, the Street's view of future credit losses and capital levels and the market's positive reaction to large reserve builds in the first quarter. The episode also features commentary from stress-testing experts, who say banks would be wise to look at the Great Recession for insight into future losses as well as our analysis of bank capital levels if those loss rates occurred this year.

The U.S. government and bank regulators have responded swiftly to the economic fallout from the coronavirus with unprecedented stimulus packages, including $349 billion for small businesses through the Paycheck Protection Program, or PPP. The program has offered a lifeline to banks' small business borrowers and attractive fees to some lenders but a group of bankers and advisers cautioned during our community bankers conference webinar series that the program is just a short-term fix and does come with some risk.

The U.S. government responded to the potential economic fallout from the coronavirus with a historic $2 trillion stimulus package, with nearly $350 billion focused on small businesses through the Paycheck Protection Program, or PPP. While the PPP kicked off with a rocky start, Isaac Boltansky, policy analyst at Compass Point, believes the Federal Reserve and U.S. Congress are committed to making it work, including through additional funding. In the episode, Boltansky, a former member of the TARP Congressional Oversight Panel, discussed the mechanics of the PPP and criticisms to date as well as his expectation for more financial support to come since "deficit hawks are on the endangered species list" in Washington D.C.

Bank stocks have been punished as interest rates have plunged and the outlook for economic growth has soured due to fears over the coronavirus, but the selloff could be overdone, according to RBC Capital Market's Gerard Cassidy. In the episode, Cassidy, head of U.S. bank equity strategy at RBC Capital Markets, discussed what has driven the roughly 40% decline in bank stocks over the last month, what current valuations imply about future performance and what he believes will bring investors back to the sector.

A number of regional banks have pushed for scale to invest in digital channels but some even smaller players have enlisted fintech firms to build platforms on their own. In the episode, Dale Oberkfell, president and CFO of Midwest BankCentre, a St. Louis-based bank with $2 billion in assets, discusses how his institution utilized software from MANTL to build a digital bank that attracted more than $100 million in deposits in just five months. MANTL COO and CFO Raj Patel also discussed future product offerings, including his expectation for more banks to offer commercial loans through digital channels.

South State and CenterState are joining forces in another merger-of-equals driven by the desire to invest in technology, but the deal stands out as both institutions felt the need to partner despite operating on strong footing. In the episode, we we spoke with S&P Global Market Intelligence colleague Zach Fox, who spoke with key advisers about the drivers of the deal. The episode also features commentary from CenterState and South State executives on the deal and the efforts the latter has made to improve digital adoption among its customers as well as comparisons to previous large MOEs such as BB&T/SunTrust and First Horizon/IBERIABANK.

In the episode, Anton Schutz, senior portfolio manager at Mendon Capital, offers his outlook for bank stocks in 2020 as well as bank M&A activity. The longtime bank investor said banks enjoyed a relief rally late in 2019 after being "oversold, underowned and hated" and the prospect of further increases in long-term rates and improvements in efficiencies will drive the group in 2020. Schutz also believes there is investor support for bank M&A, at least in the case of smartly-priced transactions. He said smaller acquirers remain in the catbird seat because they can evaluate a larger pool of potential sellers and have the optionality of selling to another institution.

Traditional banks face increasing competition from digital-only players, leading to further pressure on net interest margins. In the episode, Sandler O'Neill's co-head of investment banking and executives from First Horizon and South State Bank discuss the growth of digital-only deposit platforms, how have they kept banks from decreasing deposit costs despite Fed rate cuts and the investments that community and regional banks are making to combat the threat and improve their product offerings.