These regional banks are at risk of being booted from the S&P 500

These regional banks are at risk of being booted from the S&P 500


A customer enters Comerica Inc. Bank headquarters in Dallas, Texas.

Cooper Neill | Bloomberg | Getty Images

The stock sell-off that hit regional banks this year has exposed lenders including Zions and Comerica to the risk of being delisted from the Standard & Poor’s 500 index.

The banks, each with market capitalizations of around $5 billion, were the fourth- and sixth-smallest members of the 500 company listing as of this week, according to FactSet.

That leaves the companies in a similar position to Lincoln National, which got shunted from the S&P 500 last month and placed into a small-cap index. Blackstone, the world’s largest alternative asset manager, took Lincoln National’s spot.

This year’s regional banking crisis has already caused changes in the composition of the S&P 500, the most popular broad measure of large American companies in the investing world. Silicon Valley Bank and First Republic were removed from the benchmark after deposit runs led to their government seizure. More changes may be coming, especially if the industry faces a protracted slump, according to analysts.

“It’s absolutely a risk,” Chris Marinac, research director at Janney Montgomery Scott, said in an interview. “If the market were to further change the valuation of these companies, especially if we have higher rates, I wouldn’t rule it out.”

Banks begin disclosing third-quarter results Friday, led by JPMorgan Chase. Investors are keen to hear how rising interest rates affected bond holdings and deposits in the period.

Companies that no longer qualify as large-cap stocks are at heightened risk of demotion from the S&P 500. There were seven members valued at $6 billion or less at the end of August. Two of them were removed the following month: insurer Lincoln National and consumer firm Newell Brands.

Those that join the benchmark often celebrate the milestone. The popularity of mutual funds and ETFs based on the index means that new members typically see an immediate boost to their stock price. Those that get demoted can suffer declines as fewer money managers need to own shares in the companies.

S&P guidelines

To be considered for inclusion in the S&P 500, companies need to have a market capitalization of at least $14.5 billion and meet profitability and trading standards.

Members that violate “one or more of the eligibility criteria for the S&P Composite 1500 may be deleted from the respective component index at the Index Committee’s discretion,” according to S&P Dow Jones Indices’ methodology.

Still, that doesn’t mean Zions or Comerica are on the cusp of a delisting. The committee that decides the composition of the S&P 500 looks to minimize churn and accurately represent reference sectors, making changes only when “ongoing conditions warrant an index change,” according to S&P.

Stock Chart IconStock chart icon

hide content

Shares of regional banks ZIons and Comerica have tumbled this year.

For instance, after the onset of the Covid pandemic in March 2020, many retail S&P 500 companies temporarily violated the profitability rule, but that didn’t result in widespread demotions, according to a person who has studied the S&P 500 index.

S&P Dow Jones Indices declined to comment for this article, as did Comerica. Zion’s didn’t immediately return a message seeking comment.

Besides Zions and Comerica, KeyCorp and Citizens Financial are the only other S&P 500 banks with market caps below the threshold for inclusion in the index, according to an Aug. 31 Piper Sandler note. KeyCorp and Citizens, however, each have market caps of greater than $10 billion, making them less likely to be impacted than smaller banks.

After Blackstone became the first major alternative asset manager to join the S&P 500 last month, analysts said that peers including KKR and Apollo Global may be next, and they would likely replace other financial names. KKR and Apollo each have market capitalizations of greater than $50 billion.

“Perhaps more demotions of low-market cap financials are to come,” Wells Fargo analyst Finian O’Shea said in a Sept. 5 research note.

– CNBC’s Gabriel Cortes contributed to this article.



Source

NASA plans to stream rocket launches on Netflix starting this summer
Business

NASA plans to stream rocket launches on Netflix starting this summer

Workers repaint the NASA logo on the Vehicle Assembly Building at the Kennedy Space Center on May 28, 2020 in Cape Canaveral, Florida. Joe Raedle | Getty Images NASA’s live programming, including rocket launches, spacewalks and views of Earth from space, will begin streaming on Netflix this summer. NASA said the move is part of […]

Read More
Home Depot is buying GMS for about .3 billion as retailer chases more home pros
Business

Home Depot is buying GMS for about $4.3 billion as retailer chases more home pros

A Home Depot store in San Carlos, California, US, on Monday, Nov. 11, 2024. David Paul Morris | Bloomberg | Getty Images Home Depot said Monday that it is buying GMS, a building products distributor, for about $4.3 billion as the retailer moves to draw more sales from contractors and other home professionals. Shares of […]

Read More
WNBA announces three new teams in Cleveland, Detroit and Philadelphia
Business

WNBA announces three new teams in Cleveland, Detroit and Philadelphia

Napheesa Collier, #24 of the Minnesota Lynx, scores the game-winning basket during the game against the New York Liberty in Game 1 of the 2024 WNBA Finals at Barclays Center in Brooklyn, New York, on Oct. 10, 2024. Nathaniel S. Butler | National Basketball Association | Getty Images The WNBA announced on Monday it has […]

Read More