Overview

JPMorgan believes that Moody’s recent warning about the credit worthiness of over two dozen banks presents a favorable opportunity to buy shares of regional lenders. Moody’s downgraded the ratings of 10 regional banks and expressed concern about 17 more, citing potential weaknesses in bank balance sheets due to higher interest rates and their impact on earnings. However, JPMorgan analyst Steven Alexopoulos suggests that these concerns are already reflected in current bank stock prices, making regional bank stocks attractive at their current levels.

Rationale Behind Moody’s Actions Already Understood

According to Alexopoulos, the market already comprehends the reasons behind Moody’s ratings actions and changes to outlooks. He believes that the second-quarter results of regional banks indicate a more stable industry compared to the challenging first quarter, which was affected by bank failures. Consequently, the recent downgrades by Moody’s may have created better buying opportunities for regional bank stocks.

Impact on Bank Stocks

Moody’s downgrades had an immediate effect on the stocks of banks covered by Alexopoulos, including Pinnacle Financial. Despite being rated as overweight by the analyst, Pinnacle’s shares fell by 2.1% on Tuesday. Furthermore, even banks not mentioned in Moody’s report experienced a decline in stock prices, as evidenced by the 1.3% drop in the SPDR S&P Regional Banking ETF (KRE). As a result, many bank stocks appear cheaper now than before the downgrades, presenting buying opportunities for investors.

JPMorgan’s Top Picks

JPMorgan’s favored regional bank stocks include New York Community Bancorp and Western Alliance. On Tuesday, both stocks experienced a decline of 1.3% and 1.2% respectively. These stocks are considered attractive options for investors looking to capitalize on the current market conditions.

Note: HaberTusba’s Michael Bloom contributed to this report.