The failure of two banks last month, the biggest since the global financial crisis of 2008, caused an upheaval in the banking industry, causing a bank run. Billions of dollars of deposits were withdrawn from banks at a pace not seen since the aftermath of the 2008 global financial crisis.

Banking stocks currently face tighter credit standards and the flow of depositors’ money to money market funds. To that end, it could be wise to avoid investing in fundamentally weak bank stocks M&T Bank Corporation (MTB), The PNC Financial Services Group, Inc. (PNC), and Comerica Incorporated (CMA).

Let’s discuss the challenges the banking industry is currently facing.

Investor apprehensions following the failure of two regional banks in March led to the outflow of deposits from smaller banks. All U.S. commercial banks’ deposits declined by roughly $500 billion during March 2023. According to the U.S. Federal Reserve, small banks lost about $177.50 billion in deposits in March sequentially.

Banks must now offer higher interest rates on savings accounts to retain customers. This, in turn, has raised their cost of funds. Banks also face competition from money market funds as depositors plow their deposits into these funds for higher yields. Money market funds are attractive for investors as they offer much higher yields than banks.

As of April 19, 2023, the assets of money market funds were $5.21 trillion. U.S. banks are also increasingly likely to face several regulatory challenges like increased capital requirements, heightened supervision, stricter risk management, increased disclosure, etc., post the banking crisis.

Tighter credit standards are also expected to lead to an increase in their operational costs and reduce their lending volumes, piling further pressure on the profitability of banks.

Recently, tech giant Apple Inc. (AAPL) announced the launch of a new savings account in partnership with The Goldman Sachs Group, Inc. (GS), offering users a high-yield annual percentage yield (APY) of 4.15%, which is more than 10-times the national average. This could also be a problem for banks offering poor interest rates.

Last month, Moody’s cut the outlook on the U.S. banking system to Negative from Stable, citing a rapidly deteriorating operating environment. Looking at the uncertainty surrounding banks, it could be wise for investors to avoid MTB, PNC, and CMA.

Let’s dig deeper into the fundamentals of these stocks.

M&T Bank Corporation (MTB)

MTB is a bank holding company. The company’s bank subsidiaries include Manufacturers and Traders Trust Company and Wilmington Trust, N.A. It offers retail and commercial banking and others. Its segments include Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking, and Retail Banking.

In terms of trailing-12-month GAAP P/E, MTB’s 9.74x is 3% higher than the 9.46x industry average. Its 2.19x forward Price/Sales is 4% higher than the 2.11x industry average.

MTB’s net income available to common shareholders for the first quarter ended March 31, 2023, declined 8.6% sequentially to $675.51 million. Its EPS declined 6.5% sequentially to $4.01. Its annualized return on average assets came in at 1.40%, compared to 1.53% in the previous quarter. The company’s total nonperforming assets increased 4.9% sequentially to $2.60 billion.

In addition, its total noninterest income declined 13.9% sequentially to $587 million. Also, its net interest income after provision for credit losses decreased 2.3% sequentially to $1.70 billion.

Analysts expect MTB’s EPS and revenue for the quarter ending December 31, 2023, to decline 9.4% and 7.8% year-over-year to $4.09 and $2.31 billion, respectively. Over the past year, the stock has declined 29.2% to close the last trading session at $124.81.

MTB’s POWR Ratings reflect this weak outlook. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has a D grade for Stability and Sentiment. It is ranked #7 out of 10 stocks in the F-rated Money Center Banks industry. Click here to see the other ratings of MTB for Growth, Value, Momentum, and Quality.

The PNC Financial Services Group, Inc. (PNC)

PNC is a diversified financial services company. The company has businesses engaged in retail banking, including residential mortgages, corporate and institutional banking, and asset management. Its retail branch network is located coast-to-coast. The company’s segments include Retail Banking, Corporate & Institutional Banking, and Asset Management Group.

In terms of forward non-GAAP P/E, PNC’s 8.99x is 3.3% higher than the 8.70x industry average. Its 2.26x forward Price/Sales are 7.2% higher than the 2.1x industry average. Likewise, its 1.12x forward P/B is 15% higher than the 0.97x industry average.

For the first quarter ended March 31, 2023, PNC’s net interest income declined 2.7% sequentially to $3.59 billion. Its total noninterest income declined 2.9% sequentially to $2.02 billion. The company’s total revenue decreased 2.8% sequentially to $5.60 billion. In addition, its total nonperforming assets increased 1.4% sequentially to $2.05 billion.

For the quarter ending June 30, 2023, PNC’s EPS is expected to decline 3% year-over-year to $3.32. Its revenue for the quarter ending September 30, 2023, is expected to decline 0.7% year-over-year to $5.51 billion. Over the past year, the stock has declined 30.1% to close the last trading session at $125.60.

PNC’s weak prospects are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system.

It is ranked last in the same industry. It has a D grade for Sentiment and Quality. Click here to see the other ratings of PNC for Growth, Value, Momentum, and Stability.

Comerica Incorporated (CMA)

CMA provides various financial products and services. The company operates through Commercial Bank, Retail Bank, Wealth Management, and Finance segments.

In terms of forward non-GAAP PEG, CMA’s 1.79x is 63.9% higher than the 1.09x industry average. Likewise, its 1.01x forward P/B is 3.8% higher than the 0.97x industry average.

For the quarter ended March 31, 2023, CMA’s net interest income declined 4.6% sequentially to $708 million. Its net income is attributable to common shares declined 7.3% sequentially to $317 million. In addition, its EPS declined 7.4% sequentially to $2.39. Its average deposits declined 4.9% sequentially to $67.83 billion. Also, its return on average assets came in at 1.54%, compared to 1.65% in the previous quarter.

Analysts expect CMA’s EPS and revenue for the quarter ending September 30, 2023, to decline 21.1% and 3.6% year-over-year to $2.05 and $949.63 million, respectively. Over the past year, the stock has declined 47.4% to close the last trading session at $45.80.

CMA’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system.

It is ranked #8 in the Money Center Banks industry. It has an F grade for Sentiment and a D for Stability and Quality. To see the other ratings of CMA for Growth, Value, and Momentum, click here.

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MTB shares were trading at $123.26 per share on Friday morning, down $1.55 (-1.24%). Year-to-date, MTB has declined -14.29%, versus a 7.96% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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