Can next year get any worse than this year for Orange County’s publicly traded banks?
At press time, the shares of 10 locally based banks were at or close to their 52-week lows.
The biggest problem for 2018 was rising interest rates that meant banks had to pay more to depositors, and thus their profits were squeezed.
They will be among those companies in Orange County most closely watching how many times the Federal Reserve raises its benchmark federal funds interest rate next year. As expected, the Fed on Dec. 19 increased the rate to between 2.25% and 2.5%.
Earlier this year, the Fed indicated it would raise rates three times to as high as 3.25% next year. After the meeting, the Fed signaled they may not raise rates next year as much as they thought three months ago.
Banks say that rising rates not only cause them to pay more to depositors, they also discourage businesses from taking out more loans, and consumers from buying homes and automobiles.
“Most bank stock investors are looking forward to rolling the calendar forward after a tough 2018,” said a note from Keefe, Bruyette & Woods, whose analysts cover several OC banks. “However, there are a limited number of visible catalysts for bank stocks as we end the year with the economy slowing and the Fed expected to pause.”
COMPANY TO WATCH:
Opus Bank
To say the Irvine-based bank had a tumultuous year would be an understatement.
Its share price is down 36% since September.
In November, founder Stephen Gordon unceremoniously departed as chief executive and from the board of directors.
Many eyes are on interim Chief Executive Paul Greig, who is also chairman of the board.
According to some OC bankers, Opus was shopped around to buyers in the past year. Will Greig orchestrate a sale of Opus in 2019?
He has a history of being involved in bank sales, most notably as chief executive of First Merit Corp., which he sold in 2016 for $3.4 billion to Huntington Bancshares Inc.
A buyer of Opus will get a bank with $6.1 billion in assets and deep connections to Southern Californian developers and investors in apartment buildings, one of the best performing commercial real estate market sectors of the decade.
It would also get a bank that had to rely on high-interest paying accounts to attract depositors, a strategy that has curtailed profits.
PERSON TO WATCH:
Stephen Gardner
He built Pacific Premier Bancorp. (Nasdaq: PPBI) from near bankruptcy in 2000 into Orange County’s largest by assets with $11.5 billion.
He capped the year by acquiring Grandpoint Capital Inc., which added $3.1 billion in assets. Pacific Premier has made 10 acquisitions since 2011, making it the most acquisitive California bank since 2012 and the eighth most active buyer nationally.
The question now is: Will Gardner continue to make smaller acquisitions, or will he attempt a large buy? Its current size gives it the potential to acquire similarly large banks in markets like Phoenix, Portland or Seattle, an analyst told the Business Journal earlier this year.
