5 Bank Stocks To Avoid Despite High Chances Of Rate Hike

A slew of strong economic data and favorable comments from Fed officials have set the stage for a rate hike later this month. Per the CME Group (NASDAQ:CME) FedWatch tool, the odds of a December rate hike are now nearly 95%.

Strong retail sales, an improving housing market, firming inflation rate and record low unemployment are likely to satisfy the Fed’s criteria for increasing rates in its meeting on Dec 13–14. The Fed Chairwoman Janet Yellen’s testimony at Congress’s Joint Economic Committee last week that the rise in rates will happen “relatively soon” further reinforces expectations for the same.

Following the hike last December, several rate sensitive banks witnessed an uptick in net interest income and net interest margin. Hence, another rate hike will modestly support the banks’ top-line growth, which has been under pressure amid a challenging operating environment.

Profitability of banks was challenged by several matters, including stringent regulations and rising expense base (huge legal costs to resolve legacy issues, compliance expenses and investments in technology upgrades). Moreover, low levels of oil prices have affected many banks’ asset quality owing to the need for higher provisions to cover delinquent energy sector loans.

Further, for banks with international exposure, several factors like negative interest rates in Eurozone and Japan, slowdown in Chinese economy and continued weakness in emerging markets have contributed to growth concerns.

Therefore, to mitigate these concerns, banks are undertaking defensive measures including slashing jobs, curtailing unprofitable/non-core businesses and reducing footprints. Also, they are looking for avenues to diversify revenue sources. However, these are not adequate to generate stable returns. Also, another possible rate hike is not likely to be enough to confront the larger challenges in the banking industry.

Amid such a tough operating backdrop, we suggest avoiding certain banking stocks that don’t look attractive even if the Fed raises rates later this month.

Banking Stocks to Dump Now

While it’s not easy to select such stocks from the vast banking sector universe, we have taken the help of Zacks Stock Screener to make this task relatively simpler.

We have shortlisted five banking stocks with a market capitalization of at least $1 billion and a VGM Score of ‘F.’ Further, these stocks carry a Zacks Rank #4 (Sell) or #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Glacier Bancorp, Inc. (NASDAQ:GBCI) : With a market cap of $2.7 billion, this West bank currently has a Zacks Rank #4. While the company shares’ have outperformed the Zacks categorized West Banks industry in the last six months, the Zacks Consensus Estimate for the company was revised 1.8% downward to $1.60 per share for 2016, over the last 60 days. Hence, the owing to fall in estimates, price performance may not continue in the future.

Capitol Federal Financial, Inc. (NASDAQ:CFFN) : This Savings and Loan company, with a market cap of $2.2 billion, has a Zacks Rank #4. The Zacks Consensus Estimate for the company declined 3.1% to 63 cents per share for fiscal 2017, over the last 60 days. Further over the last six months, the stock has underperformed the Zacks categorized Savings and Loan industry.

Hope Bancorp, Inc. (NASDAQ:HOPE) : With a market cap of $2.8 billion, this West bank currently has a Zacks Rank #4. While the company shares’ have outperformed the Zacks categorized West Banks industry in the last six months, the Zacks Consensus Estimate for the company was revised 4% downward to $1.21 per share for 2016, over the last 60 days. Hence, the owing to fall in estimates, price performance may not continue in the future.

WSFS Financial Corp. (NASDAQ:WSFS) : With a market cap of $1.4 billion, this Savings and Loan company currently has a Zacks Rank #4. Over the last 60 days, the Zacks Consensus Estimate for the company was revised 1.7% downward to $2.25 per share for 2016. Further over the last six months, the stock has marginally underperformed the Zacks categorized Savings and Loan industry.

Sterling Bancorp (NYSE:STL) : This Northeast bank, with a market cap of $3.1 billion, currently has a Zacks Rank #4. The Zacks Consensus Estimate for the company declined nearly 1% to $1.10 per share for 2016, over the last 60 days. While the company shares’ have outperformed the Zacks categorized Northeast Banks industry in the last six months, the Zacks Consensus Estimate for the company was revised 1% downward to $1.10 per share for 2016, over the last 60 days. Hence, the owing to fall in estimates, price performance may not continue in the future.

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