How Regional Banks Can Get Ahead in 2024 with Proactive Investor Relations

 

The market environment was challenging across most of 2023 and the prior year as the scale and speed of rising interest rates created unique headwinds for “spread” businesses, which cuts to the core of the banking business model. These headwinds were particularly acute for the regional banking sector, which underperformed the broader market by roughly 17% through the first nine months of 2023. That said, the fourth quarter of 2023 brought a dramatic reversal in the sector’s favor as banks outperformed the broader market by nearly 18% over the final quarter of the year. This trend reversal may just be getting started.

While stock prices have just started to rebound, the banking sector has billions of institutional investor dollars that need to be reallocated back to the space. This won’t be a quick fix. Alpha IR researched the last two years of institutional investor movements across regional banking and witnessed four critical trends that need to self-correct this year.

These movements represent billions of dollars shifting out of the sector, much of which accelerated throughout 2023.  The good news is we believe the up-coming 13F cycle (12/31/23 filings) will show a bottom. Thus, 2024 will become a critical year for the IR programs of all regional banks who should consider the following:

• Interest Rate Expectations Have Shifted. When the Fed is raising interest rates at a historically record pace, the recipe for investors when it comes to financials in particular and regional banks more specifically is simple – stay away.  However, winds have shifted, and though many challenges and questions remain, this change is historically the most important signal for investors in the banking sector.  While the ”all clear” sign doesn’t really exist, we believe once the market and investors believe that the worst of their concerns have passed, re-engagement opportunities begin to open up.

• Specific Industry Concerns Past “Peak Worry”. Last year was full of industry specific events and challenges that both pushed investors away and kept them on the sidelines.  We saw a relatively brief “panic” phase in the first half of 2023, which was related to specific institutions, an uncertain economic environment and worries over exposure to commercial office real estate. These factors all created fear and uncertainty for investors.  While none of these issues are completely resolved, the fog of the “unknown” has been replaced with some clarity.  Again, the critical element from an IR messaging and engagement standpoint is not that concerns have been erased but rather that we are past “peak worry”.

• Time to Re-engage and Differentiate Yourself. While we appear to have reached an inflection point, opinions about the sector remain somewhat murky. Investors will be looking for a re-education of the industry in the near-term and will be searching for value as the year progresses. This presents a great opportunity for your IR team to demonstrate leadership, contrasting your company’s specific strengths and points of differentiation relative to the broader group and lingering specific concerns from investors.

Conclusion:

Strategic positioning, adapting to evolving market dynamics, and leveraging the recent change in the expected forward path of interest rates will be key factors in navigating the path ahead. As the industry undergoes a potential paradigm shift, very few banks are capitalizing on this messaging opportunity. There are hundreds of opportunities for investors to play this trend reversal. Banks that have the forethought to think strategically and build a proactive IR program will be the clear capital winners in 2024.  Alpha IR was built to help public companies proactively manage their IR communications and gain the visibility they deserve.

About Alpha IR Group

Alpha IR Group, a division of Alpha Advisory Group, was founded in 2012 and is a holistic investor relations and corporate communications firm that works at the C-suite level to protect, enhance and build the investment brands and corporate reputations of leading public companies. Our senior leadership has 100+ years of combined strategic IR, Wall Street, transaction, and crisis consulting experience. With deep sector expertise and senior-driven programs, Alpha IR is the right choice to manage our clients’ reputations, credibility, and ultimately, their valuation.