Portfolio Manager Insights

Capitalizing on the gap between perception and reality among U.S. banks

The 2023 regional banking crisis continues to cast a shadow over the broader industry, but Fidelity’s Matthew Reed believes some high-quality lenders have quietly proven their mettle.

By: Matt Reed
Updated: 12/15/2025
  • Banks have been under a microscope over the past two years, according to Fidelity Portfolio Manager Matt Reed, who remains encouraged by lending institutions recalibrating as deposit and loan growth begin to normalize – positioning the industry to potentially benefit from a natural earnings tailwind, among other drivers.
  • “For some time now, banks have been busy fortifying their defenses and preparing for potential credit risks,” explains Reed, who manages Fidelity Advisor® Financials Fund. “But here’s the twist: Despite lingering investor skepticism, the economy, consumer balance sheets and credit quality have proven remarkably resilient, creating what I believe are undervalued investment opportunities in bank stocks.”
  • In helming the sector-focused portfolio, Reed seeks high-quality financial companies he believes can drive robust growth and risk-adjusted performance, as well as improving businesses that he feels are underappreciated by the market.
  • In an environment captivated by the allure of large growth stocks from the information technology and communication services sectors, he believes investors may be overlooking banks, including several diversified giants and some of their nimbler regional peers.
  • His positive outlook also is based on what he considers favorable fundamentals, along with a boost from the U.S. Federal Reserve’s September 17 rate cut, its first reduction since December 2024.
  • Specifically, he points out that many of the securities and loans on banks’ balance sheets are structured to reprice higher over time, potentially unlocking incremental value for years to come.
  • “The regulatory environment and interest-rate dynamics are pivotal forces shaping the banking industry,” says Reed. “The recent rate cut, coupled with lighter regulatory oversight, could enable these institutions to deploy more capital toward growth, lending and/or shareholder remuneration.”
  • On the other hand, he notes that even in an environment of structurally high interest rates, lenders with a strong deposit base appear well-positioned to thrive. Their ability to maintain lower rates on deposit accounts, thanks to technology and network advantages, affords them a competitive edge, he says.
  • For example, Reed cites Wells Fargo as a large financial firm that’s well-positioned to benefit from regulatory relief. With the Fed lifting its seven-year cap on its assets in June, the bank is now free to seek unimpeded growth, according to Reed, who also likes its robust deposit base and strong capital position. The stock remained among his top holdings as of October 31.
  • Elsewhere in the portfolio, Reed considers Puerto Rico’s Popular to be the leading depository bank in a market with limited competition. Supported by abundant excess capital, the company appears set for accelerated growth, making it a notable player among regional lenders, in his view.
  • He’s also favored M&T Bank, a mid-to-large-sized player he believes has good prospects, supported by its strong credit quality, diverse deposit base and solid capital position.
  • He adds that M&T’s acquisition of People’s United Financial in 2022 created a formidable $200 billion banking franchise spanning the Northeast and mid-Atlantic.
  • “Not all banks are created equal, with significant differences separating the strongest and weakest players,” Reed concludes. “But in many respects, the highest-quality institutions simply aren’t getting enough credit for their differentiated advantages, in my opinion.”

    Securities mentioned were fund investments as of October 31.
 
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