Shaken by the sudden collapse last week of Silicon Valley Bank, or SVB Financial (SIVB, Financial), investors continued to sell off bank stocks on Monday. While smaller banks and those exposed to risker assets like cryptocurrencies suffered the most, even the top banks like Bank of America (BAC, Financial) also saw declines.
Yet, given Silicon Valley Bank’s exposure to the innovation industry, which faces unique struggles due to the worsening economic situation, as well as its poor management of risk and the U.S. government’s willingness to immediately backstop all deposits, it seemed a little irrational for the market to be treating all bank stocks like hot potatoes.
Seemingly realizing this, investors began to reverse course on Tuesday, sending many of the bank stocks soaring. Some of the top performers included First Republic Bank (FRC, Financial), which gained 29%, and Metropolitan Bank Holding Corp. (MCB, Financial), which was up 41%. The aggregate chart below shows the number of U.S. bank stocks that fell into each price change category for Tuesday:
Investors were not the only ones buying the dip on bank stocks, though. According to GuruFocus data, CEOs went on a buying spree as well. In total, there were five CEOs buying shares of their banks on Monday, March 13, while six were buying shares on Friday, March 10. Since then, most of these banks have begun to rebound; let’s take a look.
Small- and mid-cap banks
Most of the recent CEO buys for bank stocks were for Nasdaq-listed banks in the small- to mid-cap range. These included Cullen/Frost Bankers Inc. (CFR, Financial), Metropolitan Bank Holding Corp. (MCB, Financial) and Customers Bancorp Inc. (CUBI, Financial) on March 13 and CVB Financial Corp. (CVBF, Financial), Southern Missouri Bancorp Inc. (SMBC, Financial), Provident Financial Services Inc. (PFS, Financial), Ponce Financial Group Inc. (PDLB, Financial) and Glacier Bancorp Inc. (GBCI, Financial) on Friday.
These trades were generally on the small side of just a few thousand shares, but Metropolitan Bank CEO Mark Defazio snapped up 22,517 shares of his bank, while Customers Bancorp CEO Jay Sidhu bought 45,450 shares of his bank. Metropolitan Bank’s shares rebounded 41% on Tuesday, while Customers Bankcorp gained 62%. Both of these stocks had previously seen their trading halted on Monday as panic from the Silicon Valley Bank fallout triggered huge collapses in their share prices.
Cullen/Frost Bankers CEO Phillip Green may have bought fewer shares at just 9,500, but those shares were worth the highest dollar amount of the bunch, priced at $106.59 apiece on Monday for a total purchase value of $1,012,600. The stock only rebounded about 7% on Tuesday.
Micro-cap banks
There were even a few micro-cap banks that CEOs bought the dip on: Consumers Bancorp Inc. (CBKM, Financial) and William Penn Bancorporation (WMPN, Financial) on Monday and AmeriServ Financial Inc. (ASRV, Financial) on Friday.
Consumers Bancorp was stopped out on Monday and remained so on Tuesday. The holding company for Consumers National Bank, which serves the northeast Ohio region, mostly deals with small local businesses, commercial real estate loans and agricultural equipment loans.
William Penn and AmeriServ have begun trading again, though they were mostly flat on Tuesday. These are also small regional banks that are unlikely to have much exposure to what most of the world would consider “venture capital.”
Are smaller banks at risk?
Despite operating outside of the limelight, small regional banks have actually become a surprisingly popular source of funding for startups in 2022 and 2023 as the big venture capital firms have taken a step back.
According to a study from Cornerstone Advisors titled “What’s Going On in Banking 2023,” there are approximately 500 community banks and credit unions that have been investing directly into fintech startups, with an average investment of $3 million per bank in 2022.
Thus, the fears that regional banks could be embroiled in the startup funding crisis are not coming out of thin air.
A bigger risk could come simply from the worsening economic situation, though. Despite the U.S. government’s emergency plans to backstop banks, inflation continues eating into the amount of money that Americans are able to save, while higher interest rates are increasingly making Treasury bonds more attractive than savings accounts. These factors are drawing down deposits and could hurt net interest income.
Were any insiders buying the large-cap banks?
Insider activity in the wake of the Silicon Valley Bank fallout appears to have been limited to micro-, small- and mid-cap stocks. No bank stock with a market cap over $10 billion has been bought by an insider since January. The full list of insider trades can be found here.
Two insiders from Bank of America (BAC, Financial), one from Wells Fargo & Co. (WFC, Financial) and three from Citigroup (C, Financial) were selling shares of their banks this past February.
Takeaway
There were quite a few CEOs buying shares of smaller banks following the recent selloff, which may serve as a vote of confidence.
Unfortunately, it is not clear whether that confidence comes from faith in the banks themselves, faith in the government to save the day or faith that the economy will stake a miraculous unlikely recovery on the back of a speculated Federal Reserve policy reversal. The low repercussions of Silicon Valley Bank’s failure may have skewed perspectives on this matter.
The good news is, as long as a bank can avoid being taken over by regulators, it will likely live to see better days. With the big banks, there is the potential for a massive failure and breakup, like Citigroup (C, Financial) in the financial crisis, though smaller banks are more likely to just be shut down entirely instead.
