Battered regional banks got a vote of confidence from the one-time king of the bond world.
In his investment outlook published Friday, Bill Gross, the former chief investment officer of Pacific Investment Management Co., said he has purchased stocks including Western Alliance Bancorp, Synovus Financial Corp. and PacWest Bancorp as well as SPDR S&P Regional Banking ETF.
Following a series of bank failures in early March, shares of small lenders have slumped, trading at a discount of about 60% of the value of their net assets. That, together with a return-on-equity of around 10%, provides “an enticing long-term investment,” according to Gross, who retired from asset management in 2019.
“I’ve always told myself and close friends that I wish I could start a bank,” wrote Gross. “It’s a license to make money even when run conservatively. Admittedly, regionals will have their cyclical problems if and when a recession occurs, but my long-time wish to own a bank is now possible via public markets.”
In addition, smaller regional banks may be “gobbled up” by larger players at a premium to the current prices, he said.
Since his retirement four years ago, Gross continues to use his outlook to express economic views and offer investment tips, a tradition that dates back to the 1970s, when he was building Pimco into a bond powerhouse. He was ousted from the company in 2014, after clashing with other executives.
The recent banking turmoil, he said, was just another example of the fallouts from decades of easy monetary policy, “radical” financial innovation and “fiscal deficit bailouts.”
US and global economies are so addicted to cheap credit that it is “extremely difficult” for inflation to return to the Federal Reserve’s 2% target, he wrote. Therefore, investors should own inflation-protected bonds, rather than Treasuries, with expectations that consumer prices will increase by more than 3% a year.
While becoming a “banker by proxy” through his personal investment in regional bank stocks, Gross hardly seems to have any regard for the profession.
In his usually provocative and unorthodox style, Gross has railed against every major character on Wall Street, from central bankers to hedge fund managers.
Ridiculing bankers, for example, he wrote:
“Lend money that isn’t theirs, charge you interest on it, foreclose on your home if you don’t pay it, accept a handout from the government when they get into trouble, and then perpetually complain about bonuses and regulation. Poor babies! Would they prefer to be a truck driver?”