Yahoo Finance

So, interesting action in the first quarter from the financials. As I said broadly, the financials did pretty well, but those regionals did not. Why the negative sentiment there in particular?

I think there's a lot of reasons for it. Certainly, we haven't seen all the M&A we're expecting to see. Um, you know, people are have no patience. But it's coming and I think you need to get the regulatory agencies aligned with the president's agenda. I think it's taken a little while. I think, I'm not sure they all know they all have jobs. So I think that's part of it. But I do expect we're going to see more transactions. What we have seen is transactions have sped up approval times have sped up dramatically. Uh, I think that's really important. I think the other thing that people are looking at is economic uncertainty, right? What are, what are interest rates doing? What's the Fed going to do? Are we gonna have a recession or not? How deep will it be? So financials are always taking on the chin. They always want to bring it back to 2007 and 8. And, you know, this is not that. Um, the banking industry's done a great job. They've not taken a lot of risk. There's not a lot of crazy products out there like there were in the mortgage world. And I think the consolidation is going to be very impactful. And, you know, by the way, a lot of the really smaller banks trade very close to book value, trade single digit earnings multiples. And their book value is going to climb a lot this quarter. If you think about what's happened to the bond market, you've seen big gains in the bond market. Banks hold a lot of US treasuries. So you're going to see a lot of gains there. Uh, you're going to see earnings, book values will be up, the capital will be up, which leads to buybacks, leads to more M&A, uh, leads to dividend increases. So I, I think things look pretty good in terms of, you know, where I expect things to go, especially in the smaller bank space. And you know, the larger banks will be fine. I think capital markets will be slow this quarter. When you put up a slide like this, you look at the largest banks and capital markets will be quiet, right? We've, we've seen a very volatile market, so very difficult to have IPOs and secondaries and have them perform well. So I think there's a latent desire for M&A to happen, period. And certainly a latent desire to have more capital markets activity. I think once there's clarity, I think you're going to see a lot of activity across the space from small to large.

Um, so are you thinking about how you invest in the regionals that have less capital market exposure differently than those that have more?

For most part, most of the regionals have very little capital market exposure. First Horizon is one of my bigger positions. They have capital markets exposure, but it's mostly fixed income and they should actually do pretty well from that perspective.

So I, I guess what I'm asking is do you think that, would you stay away from some of the larger banks that do have that capital market exposure? And is that one of the reasons why?

Well, you know, certainly I think you've seen some people take numbers down, I think it started today, uh, of the larger banks. But they're all, they're all not very expensive. But the bigger the bank, the higher the multiple. The higher price to book, higher price to earnings. And so the real opportunity is to go smaller where you get much closer to book value valuations, much lower single digit earnings multiples. Uh, and then they don't have that type of exposure. So I do prefer the small and I do prefer consolidation candidates among that space.