Friday POW!

Time to bank on the regionals?

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While the market pays 30x + for everything that touches AI, this entire sector trades at 11x earnings because it broke three years ago and no one has forgiven it. That’s where we often like to look.

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Key Highlights

• Cheap on an absolute and relative basis: ~12x forward earnings versus a long-run average well above that and a market multiple roughly double it. You are paid to wait, with a ~2.4% dividend yield on top.

• The net interest margin (NIM) inflection is confirmed, not just a pipedream: Q1 2026 earnings showed deposit costs finally rolling over and NIMs widening across the group, which is the single most important operating trend for banks, and it just turned positive.

• Two real catalysts building: a regional-bank M&A/consolidation wave unlocked by regulatory clarity, and a lighter Basel III regulatory revamp that could free up capital and buyback capacity.

• Diversification by design: equal-weighting across ~150 banks means no single blow-up can sink the thesis (like we saw in 2023)

• A genuine value/cyclical rotation vehicle if money keeps leaving crowded growth for the “real economy.”