The expected Federal Reserve interest rate hikes, in June and before the Presidential election this fall, will likely drive bank stocks "sharply higher" after recent increases in loans, deposit rates and bank profits, Jason O'Donnell, analyst at Main Line-based Bluestone Financial Services Group, told clients in a conference call today.
The recent rise in bank mergers will likely continue, with South Jersey-focused Sun National Bank likely to attract a buyer at a premium of at least 15% of recent trading values. "In the next 18 months, we think they are gone," O'Donnell said. North Jersey's Peapack-Gladstone and Florida's Atlantic Coast Financial are also potential sellers.
Republic First Bank of Philadelphia "is an interesting story: a high growth commercial play that has kind of run out of capital" and will likely decide soon if it will raise more or find a buyer, O'Donnell said.
His team sees Royal Bank -- the one in Narberth -- recently selling at a discount to its potential. Bluestone also likes DNB of Downingtown, which recently announced plans to buy Philadelphia's Valley Green Bank. And O'Donnell sees value at Jay S. Sidhu's Wyomissing-based Customers Bank, whose Bank Mobile initiative "the Street is underestimating."
Higher Fed rates "are very encouraging for deposits," added Bluestone chief Ted Peters, past CEO of three Main Line banks. While up to one-third of banks' reported 12% growth in commercial loans over the past year is due to acquisitions of smaller banks, the growth "is still good," Peters added.
Peters expressed some concern over lenders' herd-like focus on apartment loans over the past few years. "I've been a banker 38 years, and bankers sometimes aren't real smart about making mistakes again," he warned.
But Bluestone has stopped shorting banks, for now, in expectation prices will keep rising in the short term.
