McGratty: Bank balance sheets are in a really good spot

Bank Balance Sheet & Credit Quality - Banks have significantly tightened credit standards since the financial crisis, with leverage decreased [1][2] - Non-performing assets and non-accrual assets are coming off multi-year lows, indicating a normalization process [4] - Limited balance sheet growth in banks contrasts with substantial growth in private credit, which is receiving considerable attention [5] - Bank balance sheets are generally in a good position due to stricter underwriting standards implemented over the past 15 years, largely driven by regulation; one-off issues are expected [6] Regional Bank Investment & Valuation - There is a 30% valuation differential between the largest universal banks (e.g, JP Morgan) and some regional banks [7] - KBW currently recommends overweighting the universal banks due to their consistency and strong ROE, despite exposure to similar credits [8] - Select regional banks in the $50 billion to $100 billion asset range are primed for deregulation and trading at attractive valuations (e.g, East West, Colia, Webster Financial trading at eight times earnings) [8] - In times of uncertainty, valuation becomes secondary as investors prioritize assessing exposures and selling first [9] Potential Opportunities - Opportunities may arise in the medium term, as demonstrated by Western Alliance's successful navigation of past crises and subsequent investor gains [10]