This under-the-radar banking stock may ride the crypto wave, JPMorgan says

Published Tue, Feb 9 20219:34 AM EST

Amid the surge in bitcoin prices, one bank is positioned to ride the crypto wave given its exposure to digital assets, according to JPMorgan. That name is Signature Bank , which has seen its shares rise more than 40% this year through Monday's close amid growing interest in bitcoin. On Tuesday JPMorgan reiterated its overweight rating on the stock, while adding the company to its focus list. "With Signature now positioned to be a top bank in this niche [digital assets] and many key relationships (including with the top 5 digital asset exchanges) in place, the bank has the potential to capitalize on its first mover advantage and gain share in the digital assets industry," analyst Steven Alexopoulos said. JPMorgan noted that during Signature Bank's fourth quarter earnings call the company said its digital banking team increased deposits by $8 billion in 2020 to over $10 billion in deposits. Crypto now represents roughly 16% of the bank's total deposits, according to JPMorgan. "This significant growth from the relatively lesser known niche caught investors by surprise and triggered many questions about the opportunity for growing this newer business," the firm said. Signature's proprietary blockchain platform allows customers to buy and sell cryptocurrencies on a real time basis with exchanges. The bank is not exclusively focused on digital assets, however, and also has exposure to areas like commercial real estate loans. After trading around $9,000 for much of 2020, bitcoin surged during the fourth quarter of 2020, with that strength continuing into 2021. On Tuesday the digital currency hit a new record high of $48,200. Signature Bank rolled out a new platform in June of last year, meaning it was in a prime position to capitalize on the growing interest in bitcoin. During the fourth quarter of 2020 Signature Bank's deposits from digital asset-related clients rose to double the size of those at Silvergate Bank, its next closest competitor. As bitcoin prices have moved higher, the crypto world has increasingly attracted attention from high-profile investors. Bill Miller, Paul Tudor Jones and Stanley Druckenmiller are all bullish on bitcoin. Meanwhile Tesla announced on Monday that it bought $1.5 billion in bitcoin. More corporations could follow suit. "The way to think about the business for Signature is that the business of banking companies in the crypto ecosystem is in the very first inning (first batter actually) with a potentially very large runway ahead to acquire new customers as the ecosystem expands," JPMorgan said. However, the firm also noted that Signature Bank's exposure to digital assets will bring "much more volatility into the company's earnings stream." Alexopoulos also noted that disclosures from Signature Bank are limited. Still, JPMorgan remains optimist on Signature Bank and has a $250 target on the stock, which is 28% above where shares closed on Monday. Shares gained about 5% during premarket trading on Tuesday. - CNBC's Michael Bloom contributed reporting.

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Amid the surge in bitcoin prices, one bank is positioned to ride the crypto wave given its exposure to digital assets, according to JPMorgan.