Author / Date: David Rogers — October 24 2023
Source (URL): https://www.theaustralian.com.au/business/markets/webster-financial-avoided-the-mistakes-of-us-bank-failures/news-story/0fc753cab6941e74934a60c7551472ae
Republished By: Sohn Hearts & Minds
When Ravi Chopra looks back on the regional-banking crisis that roiled the United States in March, he sees a lesson in risk management that will echo for years to come.
Chopra — the founder and chief investment officer of New York-based Azora Capital — was among the few hedge-fund managers to anticipate the collapse of Silicon Valley Bank, Signature Bank, Silvergate and First Republic by shorting their stocks ahead of the crisis. Now he is using those same risk principles to find banks that he believes got it right.
His top pick for the 2023 Sohn Hearts & Minds Conference is Webster Financial Corporation — a Connecticut-based regional bank that Chopra says “avoided the mistakes that took down its peers”.
“The US financial sector is not without its problems, but Webster did the opposite of the failures,” he told The Australian. “Where those banks chased yield and duration risk, Webster managed its balance sheet with discipline and built a stable deposit franchise.”
Webster’s subsidiary HSA Bank (Health Savings Accounts) is central to that story. It collects employer and employee contributions that sit in low-cost, recurring deposits linked to health-insurance plans across the country.
“Those deposits are sticky, growing, and not rate-sensitive,” Chopra explained. “Every January you get a fresh inflow as people fund their HSA accounts for the year.”
He contrasts this with banks whose funding relied heavily on uninsured tech and crypto clients. “When rates jumped and liquidity tightened, those depositors ran. Webster’s clients did not.”
The bank’s loan book is also shorter-duration and its securities portfolio modest, limiting mark-to-market losses as the Federal Reserve raised rates from zero to over 5 per cent in eighteen months.
“Webster’s duration risk is minimal and its deposit mix is diversified — that’s why it traded through the turmoil while others collapsed,” Chopra said.
Analysts expect Webster to earn around $6 per share next year and return capital through buybacks and dividends. Chopra notes the stock trades at less than seven times earnings, a discount he believes is unjustified given its funding stability and growth prospects.
“Investors still view all regionals through the same lens of fear,” he said. “Webster is a case study in how to do it right — funding long assets with stable, recurring deposits and managing duration prudently.”
— Reproduced courtesy of The Australian (24 Oct 2023 pp. 13 & 20).
