Barron’s: Fight the Fed With These 3 Regional Bank Stocks

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KeyCorp, Signature Bank and U.S. Bancorp are among the regional banks “expected to be better positioned for a Fed rate cut, thanks in part to a lower percentage of variable-rate loans,” according to a Barron’s analysis.

Banks typically benefit when the Fed boosts short-term interest rates because what they earn on their assets, most notably loans, increases faster than what they pay on their liabilities, mainly deposits—lifting their net-interest margins, or NIMs, and income.

But when rates decline, as is expected after the central bank’s rate-setting committee meets later this month, the reverse can occur.

Against this backdrop, the KBW Regional Banking Index is up 11% this year, compared with 20% for the S&P 500 index. And regional bank-stock valuations remain pressured, recently trading at about 1.5 times tangible book value—well below their levels of about three times before the financial crisis a decade ago.

This discount comes despite generally strong credit quality in regional banks’ loan portfolios. “There’s just no love for the banks,” says Lisa Welch, portfolio manager of the John Hancock Regional Bank fund (FRBFX).