Banks could become a sector of 'haves and have nots.' How the 'Halftime' Traders are preparing

Published Mon, Mar 20 20233:11 PM EDTUpdated Mon, Mar 20 20234:42 PM EDT

Despite turmoil in the banking sector, Morgan Stanley is still a good name to hold — and could buck broader industry trends as the crisis plays out, said Sarat Sethi, managing partner at Douglas C. Lane & Associates. Sethi said the investment bank has strong capital, which will serve it will at a time when skittish investors are rattled over liquidity issues in the sector. "This is a classic example of a company that's gonna do well when all the other banks are not," Sethi said on CNBC's "Halftime Report." "They're well capitalized — [with] great wealth management business." The stock is up 1.3% Monday, hanging on to a modest year-to-date return of 0.3%. That marks a turn from the last two weeks, when Morgan Stanley lost 5.9% and 8.3%, respectively, as the wider banking crisis unfolded. MS 1M mountain Morgan Stanley Jenny Harrington, CEO of Gilman Hill Asset Management, said banking is in a unique place following the weekend announcement that a unit of New York Community Bancorp would take over most of shuttered Signature Bank's deposits, its 40 branches and some of its loan portfolio. Signature, a major crypto lender, was closed on March 12 as regulators attempted to stem any contagion from the closure of Silicon Valley Bank. Shares of New York Community Bancorp surged more than 35% Monday, rebounding from losses of 11.3% and 14.6%, respectively, the past two weeks. Before the deal, Harrington thought the company's dividend — and the stock — was at risk. "I did a call with my clients last week where I said, 'Look, I'm pretty sure I'm going to need to sell this, I'm pretty sure that regulation is going to come in and really cripple smaller banks," she said. The announcement made her think, "the game has changed for New York Community Bank." New York Community Bancorp was able to purchase Signature assets in days because as a vote of confidence by regulators in the banking system, Harrington said. By comparison, she noted it took nearly two years for NYCB to buy Flagstar. "It's really haves and have nots," Harrington said. "One bank's loss is going to be another bank's gain, and that's exactly what this is." Harrington also said the deal would strengthen New York Community's deposit base and reduce its reliance on higher-cost wholesale borrowing, while also being able to bring down debt. NYCB also benefits by getting SBNY private bankers who bring with them no- or low-interest bearing deposits, she said. Still, some traders like Jason Snipe, CIO of Odyssey Capital Advisors, have hedged their bets amid the crisis. Snipe said he sold his SPDR S & P Regional Banks ETF (KRE) position two weeks ago when the Silicon Valley Bank fallout began. The ETF lost 14% of its value last week , dragged down by First Republic plunging 70%, as investors questioned whether the $30 billion rescue plan from a group of banks was enough to shore up its liquidity. "For me, I don't think the basket is worth owning," he said, despite regional banks serving as a "bedrock of the economy." Contagion is "obviously" spreading across several regional banks, he said. The ETF was up 1.8% in Monday's session despite First Republic's continued slide. CNBC's David Faber reported Monday that JPMorgan is advising the bank on strategic alternatives, including a capital raise or outright sale. NYCB FRC,KRE 1M mountain New York Community Bancorp, First Republic and the KRE's past month