I recommend shorting Wesbanco’s equity (WSBC) at ~$33.50 per share as the bank is arguably insolvent, and, unlike its fellow insolvent peers, the market has yet to take notice as the stock is only down ~3% since March 8th (the last day before SIVB’s share price began to implode).
There are 5 sizeable banks (excluding banks within brokerage firms) that when you mark their balance sheet to fair value using the “estimated fair values” provided in their financial statements have negative tangible common equity. They are (in order of MTM capital deficit relative to MTM tangible assets): 1) First Republic (FRC), 2) Bank of Hawaii (BOH), 3) Citizens Business Bank (CVBF), 4) Silicon Valley Bank (SIVB), and Wesbanco Bank (WSBC).
Interestingly, despite having negative capital as of 12/31/22, Wesbanco is currently down only ~3% since 3/8/23. This compares starkly with the other 4 banks – SIVB stock went down ~60% before it was halted and the bank was seized; First Republic is down ~70% since 3/8/23, Bank of Hawaii is down ~30%, and CVBF is down 14%.
The market has been overlooking interest rate risk to banks’ mark-to-market capitalization levels – which the market now appears to be rapidly correcting. I believe this opportunity exists because these banks (WSBC especially, but also why CVBF isn’t down more) are smaller in size with ~$2 to 3bn market caps, and so the market has yet to bring their mark-to-market capitalization levels into focus. I believe the market’s now rapid assimilation of losses from increase in interest rates that we are seeing in the larger weak banks will continue and will soon be reflected in the smaller weak banks as well.
The KBW Bank index is down ~20% since 3/8/22. If one doesn’t wish to express a view on the banking sector as a whole or one is otherwise bullish on banking stocks, one could execute this as pair trade by going long the KBW index and short WSBC for a very attractive win-win setup.
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Market getting smarter in anticipation of FDIC seizure or highly-dilutive capital raises