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3 best banks to buy at the beginning of June

Ashraf Aboudar
8. 6. 2023
6 min read

Banking moves the world, and not just because banks have the power to "create" money. In recent months, the sector has been rocked by the collapses of several major banks, with some others in serious trouble. Many people and investors have begun to look at the sector through different eyes and don't think banks are as risk-free as they may have thought. But if you want to invest in banking companies, here are 3 companies that seem like good options for where to put your money.

Regions Bank

1. JPMorgan Chase $JPM+1.9%

JPMorgan Chase & Co. was founded in 2000 by the merger of J.P. Morgan & Co. and Chase Manhattan Corporation. Its headquarters are located in New York City. It is one of the largest banks in the world by market capitalization and total assets. In the US, it is the largest bank by assets.

The bank provides a wide range of financial services. JPMorgan's core businesses include investment banking, asset management, securities trading, corporate and commercial banking, wealth management and investment services. JPMorgan is also known for its role in financial markets such as trading stocks, bonds, commodities and derivatives.

JPM

JPMorgan

JPM
$200.71 $3.79 +1.92%

The bank and its balance sheet can operate in almost any environment, making it a rarity in a cyclical sector. JPMorgan shares are up about 5% this year, which compares favorably with most bank stocks and indices.

Key to JPMorgan's success is its thriving consumer and community bank (CCB) and corporate and investment bank (CIB) businesses. When rates rise, JPMorgan's CCB tends to grow, while the CIB tends to grow in a lower interest rate environment, balancing each other nicely and making the bank resilient.

During the recent banking crisis, JPMorgan showed how much consumers, businesses and corporations trust the brand, and saw roughly $50 billion in deposit inflows as customers rushed to the bank when others were panicking.

JPMorgan also has an extremely strong balance sheet. Despite seemingly receiving higher regulatory capital requirements each year, management is able to optimize the balance sheet and build capital to the point where it can meet those requirements while still returning capital to shareholders.

The bank believes - and has proven so far - that it can generate a strong 17% return on tangible common equity in any environment.

I have$JPM+1.9% in my stock portfolio for a simple reason - brand and quality above all else. The competitive advantage is in the name itself, which everyone knows. I bought at $108.85, which seems like a great investment today. I am gradually taking dividends and waiting for further growth. It's a long-term investment.

2. Regions Financial $RF+1.1%

The $154 billion Regions Financial, based in Birmingham, Alabama, has leveraged its attractive Southeastern banking markets and developed what looks to be the strongest and most resilient low-cost deposit base in its group.

It is one of the largest banks in the southeastern United States. Regions Financial Corporation operates more than 1,400 banking offices and 2,000 ATMs in more than 15 states in the southeastern region of the United States.

RF
$19.12 $0.20 +1.06%

The bank provides a wide range of financial services, including personal and business banking, mortgages, loans, wealth management, investment services, and insurance. Regions Financial Corporation focuses on serving small businesses, corporations, individuals and government organizations.

The key appears to be that 70% of Regions' deposits are in retail deposits, with 75% of the bank's total deposits insured by the Federal Deposit Insurance Corporation (FDIC). In addition, many customers in lower balance regions have experienced wage growth in recent years, making them much stronger financially.

Regions Financial Corporation is also a member of the S&P 500 Index and is traded on the New York Stock Exchange (NYSE) - ticker $RF+1.1%.

In the first quarter of the year, the bank increased its net interest margin (NIM), which is essentially the difference between what the bank earns on its interest-earning assets, such as loans, and the payout on its interest-bearing liabilities, such as deposits, from 3.99% to 4.22%.

3. Cullen/Frost Bankers $CFR+0.5%

Cullen/Frost Bankers, Inc. is an American bank holding company headquartered in San Antonio, Texas. Its parent company is Frost Bank, which is one of the oldest and largest independent banks in Texas. Cullen/Frost Bankers, Inc. serves as a holding company for various subsidiaries in the banking and financial services industry.

Frost Bank provides a wide range of banking services, including personal and business banking, wealth management, mortgage, lending, investment and insurance services. The bank focuses on the Texas regional market and supports business and community development in its service areas.

CFR
$102.31 $0.48 +0.47%

One of the reasons many have grown fond of Cullen/Frost Bankers' assets, which have a market value of $51 billion, is the bank's large, roughly 18% cash position, which is useful when it needs to cover deposit outflows because the bank can do so without having to divest a substantial portion.

Cullen/Frost also did a good job of not investing too much liquidity in its portfolio of bonds held to maturity - bonds that the bank intends to hold until they are fully mature.

They've also done a great job managing their funding costs and NIM (net interest margin), which rose 16 basis points in the first quarter (1 basis point = 0.01%), and management expects NIM to remain mostly flat for the rest of the year.

The bank's credit quality also looks good. Expected loan losses rose slightly in the quarter, but overall the bank's loan book looks healthy and management appears to be conscientious.

Banks are such a special component in the portfolio, at least for me. You're investing your money in a company that actually puts that money on the market. For some people it's completely unimaginable, but I still think if you pick quality banks with good balac sheets and assets, you can't go wrong. Banks also tend to be insured and supervised by a central bank that won't just let them fail. If they do, they will buy each other off, as we saw first hand a few months back.

This is not financial advice. I am providing publicly available data and sharing my views on how I would handle the situations myself. Investing is risky and everyone is responsible for their decisions.


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