Most folks wouldn’t touch regional banking stocks with a 10-foot pole these days…
I don’t blame them.
So far this year, we’ve seen four banks, with a total of $550 billion in assets, go belly up.
When a bank fails, depositors are protected. But shareholders lose everything.
At Wide Moat Research, we help protect investors like you from losing everything to bank failures. We know how to spot the “walking dead” banks and warn you before it’s too late.
And there are plenty of “zombie banks” among us. These are banks that are doomed but don’t realize it.
But there are also banks that are the opposite: zombie-eating super banks…
These banks with A-rated balance sheets are poised to gobble up troubled banks and grow their market share.
And as I’ll show you today, one of my favorite zombie-eating super banks is 40% undervalued.
It presents a great opportunity to benefit from the recent bank turmoil – instead of losing it all to a zombie bank.
But first, it’s important you understand what a zombie bank is… and why they’re so vulnerable to takeovers.
Beware of the Walking Dead Banks
Zombie banks might look like regular banks on the surface… But their fate was sealed by mistakes they or the Fed made years ago.
Silicon Valley Bank (SVB) is one example. It was doomed when it invested record new deposits into long U.S. Treasury bonds at record-low interest rates.
This guaranteed massive losses that would doom the company if interest rates rose – which, of course, they did.
Silicon Valley was a zombie months before Wall Street realized it. But it was only the first to fall.
Another was First Republic Bank (FRC). It became a zombie bank as soon as it borrowed $100 billion from the Fed at high interest rates. It just took two more months for Wall Street to realize it was a walking corpse.
After SVB’s collapse, half of First Republic’s customers panicked and left. That left the bank unable to run profitably or pay back its high-interest loan.
You might be wondering – what will be the next regional bank to fall? And what has already turned dozens, if not hundreds, of banks into zombies?
The upcoming recession.
Loan losses are already soaring, having tripled since the pandemic lows.
And now, data from the Federal Reserve estimates banks are going to lose about $180 billion in this recession, as their loans go bad.
And then there are bond losses – which will only get worse as interest rates rise.
The fastest increase in interest rates since 1981 have weakened Zombie banks this year.
These hikes caused $700 billion in unrealized bond losses. And it’s left banks half alive and hurting for cash. And just like Silicon Valley and First Republic, this could spell disaster for some.
According to Stanford, up to 200 regional banks might be about to fail.
They may still be alive… but they’re dead men walking. Their stocks are headed to zero. And they’ll take the cash of as many investors as possible on their way out.
But not all banks are zombies. As I mentioned up top, some are zombie eaters…
Here Come the Zombie Bank Eaters
First Republic was the 12th largest bank in America. And when it finally died, JPMorgan (JPM) came to the clean up and absorb the mess by way of a government-sponsored buyout.
To get JPMorgan to agree, the government had to make it a sweetheart deal. it promised to cover the first $50 billion in loan losses on the $213 billion in loans JPMorgan bought for $10.6 billion.
That meant JPMorgan was able to pay about 5 cents on the dollar for First Republic’s loans. This deal was so good for JPMorgan that it earned a $2.6 billion profit the moment it signed.
But what if I told you there was a bank hero rising to eat the next failed banks? And thanks to its size, it can score an even better deal than JPMorgan.
PNC Financial Services (PNC) is the 6th largest bank in America. It’s A-rated by S&P, meaning its risk of failing is just 2.5%.
PNC was one of 11 rescue banks the government asked to save First Republic when it first started failing. And it was the second-highest bidder to take it over, losing out only to JPMorgan.
And here’s where the opportunity for a bank like PNC to rise up lies today…
JPMorgan has said it doesn’t want to buy any more banks. That leaves PNC as next in line to gobble up the coming hoard of zombie banks.
But thanks to PNC’s smaller size, the benefit it could get from eating the next failed bank is up to three times bigger than what JPMorgan got.
That means in one big zombie bank buyout, PNC could send its earnings soaring by 20%. And that’s just one deal among many potential coming opportunities.
The Wall Street Journal estimates that in the next decade or so, about 2,000 banks are going to get eaten by stronger banks.
PNC is 40% historically undervalued, yields a very safe 5%, and is one of the smartest ways to profit from the coming zombie bank apocalypse right now.
Don’t miss out on this opportunity.
Safe Investing,
Adam Galas
Analyst, Intelligent Income Daily
P.S. There’s another zombie-bank eater I’m researching right now. It’s even more undervalued than PNC is today and could deliver 150% returns in the next 18 months.
I’ll be sharing all the details of this play in my next Fortress Portfolio issue. Make sure you sign up before July 18 to be first in line to get this brand-new recommendation.
We created Fortress for economic conditions just like this. And while regular investors get burned by the zombie bank apocalypse… We’ll profit from the best zombie-eating companies on the market.