Bill Nygren buys this regional bank with strong deposits, says 'inappropriate role' of short selling contributing to fears

Published Fri, May 5 20232:45 PM EDT

Oakmark Funds' Bill Nygren scooped up shares of Truist Financial during the first-quarter banking rout that saw the collapse of Silicon Valley Bank . "We think it's an extremely attractive long-term investment that will weather this short-term difficulty just fine," the famed value investors said during an interview with CNBC on Friday. According to Nygren, investors are laser-focusing on Truist's mortgage portfolio and overlooking its insurance brokerage business. TFC 1D mountain Truist shares pop on Friday The bank recently sold 20% of its insurance brokerage business to private equity group Stone Point Capital . Relinquishing the other 80% of that insurance business for the same price should easily cover the mark to market losses on their loan portfolio, he said. "We think of it as paying about tangible book mark to market, including the mortgage or the insurance subsidiary, for one of the absolute best deposit franchises in banking," Nygren said. The top-performing value manager also highlighted the bank's presence in rapid-population growth states and long-duration deposits from transaction checking accounts as other positives. The stock's slumped more than 34% in 2023, but gained 8% during Friday's trading session as investors shook off banking fears . Beyond Truist, Nygren sees several opportunities in the sector. He owns Capital One and Ally Financial , names offering solid earnings and trading at a discount to mark to market book value. Investors, he added, may be steering clear because of "recency bias" and concerns an impending recession will mimic the Great Financial Crisis. He also maintains positions in large names with single-digit price-to-earnings multiples and growing businesses, such as Bank of America and Wells Fargo . Earlier this year, Nygren was among a list of prominent investors that bought the dip in Charles Schwab shares. No 'spiraling fundamental problem' Despite some resurfacing bank fears, Nygren expects the sector to fair okay over the long haul. Broadly speaking, he said banks appear stronger than they were during the Great Financial Crisis and thinks investors have unduly "penalized" the sector, failing to account for how regulation reduces their riskiness. SCHW YTD mountain Year-to-date share performance Nygren envisions banks potentially hitting "electric utility-like valuations" as investors realize how much safer they are under regulation. While Nygren does not see a "spiraling fundamental problem" in the industry, he attributes some of the recent contagion to the role of short selling. The practice should be treated differently among banks, especially during periods of failures, he said. "When they start trying to drive a stock price down to scare depositors, in hopes that the depositors will pull money out and create this vicious cycle, that's more like stepping onto the field and trying to influence the outcome," Nygren said. "I think that's an inappropriate role for short selling."