5 Bank Trends (#3 and #4) - The Diluters

Trends #3 and #4 and on the topic of dilution in banks

Editor’s note: pricing multiples were run on 11/23, so I know they are a touch stale. Also, how about that flush down yesterday off of Powell! Longer term I still think the trend is our friend. And with perfect timing, these “diluters” that did balance sheet restructures or offset CRE concentrations should underperform.

The Diluters

When a bank raises common equity, it sends a signal—whether they want to or not. The message? We’re not buyers at this price. That, dear reader, is definitionally true.

But here’s where it gets interesting: the why behind the capital raise separates the wheat from the chaff.

Some capital raises are a sign of opportunity. A bank raising equity to fund a well-timed M&A deal or capitalize on a premium valuation is playing offense. They’re turning shareholder dilution into a tool for growth—and that’s the good kind. This kind of raise can unlock strategic advantages, like acquiring a competitor, expanding into new markets, or strengthening their position in a sector they know well. It’s not just about raising cash; it’s about compounding shareholder value and building a stronger, more competitive business. Smart capital allocation at a premium valuation signals discipline, vision, and a clear plan for the future.

Other raises, however, are a desperate bandage over past mistakes. If a bank’s equity raise is to plug holes from poorly managed loan books, high concentrations in bad loan sectors, interest rate missteps, or reckless balance sheet decisions, don’t be fooled. That’s not a growth story. That’s survival mode. These raises tend to come at the first instance of a rally in price, because management knows they’re in a pinch and they too know that pricing is “too good to be true”. In this case, dilution compounds the pain for shareholders rather than creating opportunities. Worse yet, it raises questions: if they got it wrong before, why should we trust them now?

As a friend quotes a famous banker, “once a diluter, always a diluter”. PS - FOLLOW THIS MAN ON X. CGN

A bank raising equity when its stock trades at a premium shows confidence and strategic foresight. It means management believes in their ability to create value with the new capital. On the other hand, a raise at depressed valuations to fix old mistakes is a red flag—it’s an admission that they’re in trouble and have no other choice.

So, without further ado, here are some bad diluters and good diluters. As for me, I can’t buy any of the bad diluters. The good ones on the other hand should be on your long list. As always check out the RGS rankings to see who has grown EPS, RPS, TBVPS over time better than others and who on that list trades cheap.

Now onto the bad diluters …

The Bad Diluters: