U.S. BANKS AND THRIFTS

the value proposition: U.S. banks & thrifts often have low downside risk and strong appreciation potential

u.s. banks & thrifts portfolio

The U.S. Banks and Thrifts portfolio is comprised of previously converted thrifts as well as deposit accounts in mutual banks, which give Polaris valuable preferential rights to purchase stock if the mutual institution converts to stock ownership. The bank stocks in the portfolio, typically smaller thrifts and community banks, are broadly diversified geographically. Many of the portfolio holdings have footholds in multiple markets and neighboring states. While our global portfolios typically incorporate select U.S. banks, the Thrifts portfolio is a dedicated investment strategy focused solely on the financial sector. Accredited and qualified investors interested in this portfolio should contact us directly for a more in-depth strategy discussion, whereby an outline of process, philosophy, holdings and performance can be adequately addressed.

In the meantime, we provide a brief glimpse into our current investment thesis and outlook for the portfolio, cognizant of ever changing macroeconomic conditions (geopolitical risks, interest rates/Fed Funds rates, capital requirements, etc.). Check back regularly to see our outlook for each coming quarter.

outlook (december 31, 2024)

2025 interest rate cuts may be more modest than previously anticipated. This could spell challenging news for the banks’ mortgage business, which typically benefits from lower rates. At the same time, higher-for-longer rates play into the “maturity transformation” business model, which is the bread and butter of the banking industry. With a steeper yield curve, banks are able to borrow money at low short-term interest rates and lend it out at higher long-term interest rates, resulting in a larger profit margin due to the significant difference between the rates.

Overall, bank managements appear bullish about 2025 prospects, pointing to a very promising operating and regulatory environment. We expect the industry will continue on its current trajectory in terms of M&A, securities restructuring, etc., fed by a number of macro-economic trends including: economic growth, reduced taxes, easing regulations (reducing the excessive costs of compliance); higher-for-longer interest rates (which allow for net interest margin expansion); possible favorable tax policies, including the extension of The Tax Cuts and Jobs Act; and loan growth due to domestic economic activity (on-shoring, re-shoring, infrastructure spend).

Bank capital ratios are likely to come down in 2025 primarily due to 1) the implementation of the “Basel III endgame” regulations, which will result in a revised calculation of risk-weighted assets or 2) Republican regulators implementing looser capital requirements. In either scenario, banks may be able to hold less capital relative to their risk exposure; freed up funds are deployed for lending and investment, which can increase a bank’s return on equity.

To learn more about our current views on the U.S. banking sector, read our latest blog: Bullish On U.S. Bank Stocks from January 2025. Interested in learning more about Polaris’ U.S. bank and thrifts portfolio? Contact us today.

U.S. BANKS AND THRIFTS

the value proposition: U.S. banks & thrifts often have low downside risk and strong appreciation potential

u.s. banks & thrifts portfolio

outlook (december 31, 2024)

from the team at Polaris Capital...

from the team at Polaris Capital...

JOIN OUR MAILING LIST