Billionaire’s Big Bet: Why He’s Banking on This Undervalued Stock
Stanley Druckenmiller is renowned for his macro-driven investment style – he looks for big-picture economic trends and isn’t afraid to make bold, concentrated bets when an opportunity arises. His philosophy centers on anticipating economic cycles and central bank policy shifts and then positioning his portfolio aggressively.
In practice, Druckenmiller often rotates capital from popular, overextended trades into undervalued areas poised for a turnaround. For example, in 2023 he trimmed high-flying tech positions and shifted focus to the beaten-down banking sector. This reflects his contrarian streak and disciplined eye for valuation: no sector is “boring” if the price is right.
A core tenet of Druckenmiller’s strategy is capitalizing on policy-driven inflection points whereby he closely monitors the Federal Reserve’s moves as well as inflation, yield curves and fiscal trends.
If he believes a major shift, such as an end to Fed tightening or an economic cycle trough, is imminent, he tends to realign his portfolio accordingly. His purchase of Huntington Bancshares along with several other bank stocks and ETFs in late 2023 suggests he saw a pivotal macro turn favoring banks on the horizon.
Druckenmiller has also historically emphasized capital preservation and risk management, meaning he typically chooses investments with a margin of safety. With regional bank stocks trading at depressed valuations and pessimism pervasive in 2023, Huntington fit the profile of a relatively safe, undervalued asset with significant upside if his macro thesis played out.
Key Points
- Druckenmiller bet on banks ahead of a Fed pivot, expecting rate cuts and a steepening yield curve to boost profitability.
- The bank’s strong balance sheet, stable deposits, and low-risk loan portfolio made it a safer bet in a recovering sector.
- Trading at a discount, Huntington offered Druckenmiller an attractive risk-reward setup before the market caught on.
Banking Sector Backdrop, From Crisis to Opportunity
To understand Druckenmiller’s timing, it’s important to recall the banking sector context in 2023-2024. Regional banks had been left for dead by many investors after the early 2023 banking scare.
The collapse of a few high-profile banks, triggered by runs on uninsured deposits and heavy losses on bond portfolios as interest rates spiked, sent shockwaves through the sector. An inverted yield curve, where short-term rates exceeded long-term rates, squeezed banks’ net interest margins and made traditional lending less profitable.
Furthermore, regulators hinted at tougher capital requirements for mid-sized banks, and uncertainty loomed over the economy with recession fears. All of this pressured regional bank stock prices and many traded at multi-year lows relative to their book values and earnings power.
By late 2023, though, the outlook had started to shift. Inflation was easing, and there were growing expectations that the Federal Reserve would pause or even cut interest rates in 2024 as economic growth cooled. An environment of falling short-term rates and stabilizing long-term rates promised to steepen the yield curve, which historically improves bank profitability because banks borrow short-term and lend long-term, so a wider spread boosts margins.
In addition, the worst-case fears for the economy had not materialized. The anticipated wave of loan defaults had been mild, and many banks showed resilience through the turmoil. There was also rising speculation that a more business-friendly political climate would emerge after the 2024 elections, potentially loosening regulatory constraints and even paving the way for bank mergers & acquisitions.
For a forward-looking investor like Druckenmiller, these nascent trends spelled opportunity. The sector’s fundamentals were stabilizing just as sentiment was beginning to rebound. In typical fashion, he moved early after “reading the tea leaves” that the banking cycle was turning up.
Rather than waiting for everyone else to pile in, he significantly increased his exposure to U.S. banks in the third quarter of 2024. Notably, he didn’t just buy a broad ETF; he hand-picked a basket of what he viewed as strong franchises among regional and super-regional banks. One standout in that basket was Huntington Bancshares, a Midwestern regional bank that embodies many of the qualities Druckenmiller likely sought out.
Huntington Bancshares Fundamentals Deep Dive
Huntington’s balance sheet appears to be a fortress in the regional banking world, which would have been a critical attraction for Druckenmiller. The bank has solid capital levels – its Common Equity Tier 1 ratio stood around 10.3% by the end of 2023, up steadily from earlier in the year.
This capital cushion is well above regulatory minimums and indicates Huntington has been proactively bulking up its safety net. In fact, management highlighted the “further expansion of common equity Tier 1 capital” as a fourth-quarter 2023 achievement, emphasizing their conservative approach to balance sheet strength.
Liquidity is another bright spot. Huntington enjoys a stong liquidity position with a large store of cash and available-for-sale securities, equivalent to over 200% of its uninsured deposits. This means even in an extreme scenario of deposit outflows, the bank has more than double the resources needed to cover those withdrawals, a reassuring buffer that many weaker banks lacked.
The stability of Huntington’s deposit base was proven during the 2023 sector scare when its deposit levels actually grew modestly through the year. The bank’s core customer base is comprised largely of retail and commercial clients in the Midwest, as opposed to, say, volatile tech startups, resulting in a stickier deposit franchise.
Uninsured deposits make up a moderate portion of the total, after industry-wide reclassification, roughly only one-third of Huntington’s deposits were uninsured, which helped insulate it from the kind of run that felled more concentrated peers.
In short, Huntington entered 2024 with ample liquidity and a stable funding base, positioning it to weather storms and also to grow safely.
Asset quality at Huntington has also remained sound. The bank carries a moderate-to-low risk appetite by design – something its CEO frequently emphasizes. For instance, Huntington has one of the lowest commercial real estate (CRE) loan exposures among peer banks, at roughly 9% of its total loan book.
This is important because CRE, especially office loans, have been a focal point of risk as remote work disrupts property markets. By keeping CRE exposure contained, Huntington limits its vulnerability to that stress.
Even within its CRE portfolio, the bank has been proactive in managing risks. Late in 2023, Huntington took about $20 million in charge-offs on a few troubled office loans, essentially recognizing losses early and shoring up reserves.
This “early action” approach means potential problem loans are addressed head-on, and it prevents small issues from snowballing. Aside from isolated pockets like office real estate, credit metrics remain healthy. Defaults and charge-offs on the overall loan portfolio are at low levels, thanks in part to a still-strong job market and smart underwriting.
Huntington has been growing in spite of other banks falling victim to headwinds. Total loans have been on the rise at a steady, if not spectacular, pace, and there are signs that this growth is accelerating.
In Q2 2024, for example, Huntington’s average loans ticked up about 1% from the prior quarter, an admirable achievement given the industry-wide slowdown.
By Q4 last year, management reported “accelerated loan growth”, reflecting increased borrowing by both consumers and businesses as the economy stabilized.
How Will Interest Rates Affect Huntington Bancshares?
No banking analysis is complete without examining interest rate sensitivity which is how a bank’s income responds to changes in interest rates.
Huntington’s experience through the Fed’s rapid rate hikes of 2022-2023 was typical of many regional banks when net interest margin (NIM) initially climbed as loans repriced higher, then later got pinched as deposit costs caught up.
By early 2024, Huntington’s NIM had declined marginally from peak levels. In fact, the bank’s net interest income for full-year 2023 ended up a few percent lower than the prior year, reflecting that squeeze from an inverted yield curve and fierce competition for deposits. But importantly, management signaled that the trough was likely behind them – the first quarter of 2024 appeared to mark the low point for margin, and by Q2 2024 Huntington was already back to sequential NIM growth.
The rate outlook is starting to look favorable for banks like Huntington. With the Fed expected to cut rates in 2024 as inflation cools and growth slows, short-term funding costs should begin to drop.
Banks can reprice deposits downward to relieve pressure on their interest expenses. And longer-term rates are likely to remain elevated or drift down only slowly, especially if heavy government borrowing, or “fiscal recklessness,” as Druckenmiller himself has described it, keeps upward pressure on the long end of the yield curve.
The result may very well be a widening spread between what banks pay for money and what they earn on loans and securities – a classic recipe for improved NIM.
Huntington’s own forecasts highlight this because the bank projects net interest income to resume growing in the mid-single digits, even before considering any major rate cuts.
In its January 2025 outlook, Huntington guided for 4–6% NII growth in 2025, which will mark a new record level of interest income for the company. Larger peers like JPMorgan and Bank of America have echoed similar optimism, suggesting industry-wide confidence that the rate cycle is turning benign for banks.
It’s also worth noting that Huntington has carefully managed interest rate risk. The bank uses hedging programs totaling tens of billions in notional value to protect portions of its loan and securities portfolio from extreme rate movements.
This means Huntington isn’t wildly exposed to one interest rate scenario and it has a degree of insulation whether rates rise or fall. During the worst of the rate spikes, this risk management helped limit damage to its bond portfolio and equity. Now, as the tide turns, Huntington can gradually reduce some hedges and let improving market rates flow into earnings.
Overall, the bank is positioned as asset-sensitive heading into 2024–2025. When rates fall, the benefit to its funding costs should outweigh any loss in asset yields, thereby boosting net interest income. This interest rate positioning likely aligns perfectly with Druckenmiller’s macro view whereby he expects the Fed to ease and yield curves to normalize, meaning Huntington stands to be a prime beneficiary of that scenario.
Huntington’s profitability metrics took a hit during the tumult of 2023, but the trend heading into 2024 is strongly positive. In Q4 2023, the bank’s return on assets was only about 0.5% and return on tangible common equity (ROTCE) around 8–9%.
These subdued figures were influenced by one-time charges, like a special FDIC insurance assessment, and the higher expense base from its growth investments. However, adjusting for unusual items, Huntington still delivered a decent ~0.8% ROA in that period, not far off many peers, and importantly, management was “pleased” with the trajectory. Fast forward one year, and profitability has surged.
By late 2024, Huntington’s ROA had doubled to roughly 1.0–1.1%, and ROTCE jumped into the mid-teens (~16%). This kind of improvement reflects rising revenues (from both net interest income recovery and booming fee income) combined with controlled expense growth.
Fee-based Business Growing Massively
Huntington has diversified revenue streams beyond plain lending. Its capital markets and advisory division had a banner end to 2024, with fee income up over 70% year-on-year as corporate clients resumed deal-making among IPOs, bond issuances, M&A advice.
Wealth management is another steady contributor. These fee businesses helped push Huntington’s total revenue higher even when interest income was under pressure. For Druckenmiller, who appreciates multiple earnings levers, this diversification means Huntington isn’t solely at the mercy of interest rates to make money because it can generate counter-cyclical income as well.
The bank also undertook cost-cutting initiatives like branch consolidations and a voluntary early retirement program for staff, aiming to streamline operations after years of growth. While there were upfront restructuring expenses, these moves are expected to lower the ongoing expense base.
Huntington’s management talks about maintaining discipline on expenses even as they invest in growth. As a result, the efficiency ratio, a measure of costs relative to revenue, is expected to improve going forward. A more efficient bank can translate revenue gains into pure profit more effectively.
Given Druckenmiller’s focus on profit drivers, the combination of recovering net interest margin, steady loan growth, and cost controls paints an attractive picture of improving operating leverage at Huntington.
Huntington Stands Out Among Rivals
Huntington Bancshares stands head and shoulders above most regional banks, and this would not have been lost on Druckenmiller when selecting it as part of his banking bet.
With roughly $190+ billion in assets, Huntington is a “super-regional” bank, giving it significant scale advantages over smaller community banks. Scale brings a larger branch network, broader product offerings, and the ability to invest in technology – all crucial for winning and retaining customers in modern banking.
In its core Midwest markets of Ohio, Michigan, and Illinois, Huntington enjoys top-tier market share in deposits and is a household name. This local brand standing provides a stable foundation of low-cost deposits and lending opportunities.
Yet Huntington hasn’t rested on its laurels and has grown In attractive new territories, such as the Carolinas and Texas.
Compared to peers, Huntington’s business mix is relatively balanced. It serves a healthy mix of retail consumers, small and mid-sized businesses, and larger commercial clients, so it isn’t overly reliant on any single segment. For instance, some regional banks heavily tied to corporate lending or capital markets saw big volatility in 2023.
Huntington has kept riskier activities, like speculative commercial real estate development or volatile trading operations, to a minimum. This conservative approach helped it outperform many peers during the banking sector stress.
Within the regional bank peer group – which includes names like KeyCorp, Fifth Third, Truist, M&T, and others that Druckenmiller also bought – Huntington stands out as a well-managed, innovating player that nonetheless trades at a modest valuation.
A couple of years ago, Huntington’s stock price languished along with the sector, at one point trading near or below its tangible book value. Even by late 2024, despite a rally, the stock was valued around 1.3x book and roughly 8-10x forward earnings. That relative undervaluation likely made it a prime target for an astute investor looking for quality at a discount.
Aligning the Purchase with Druckenmiller’s Outlook
Druckenmiller’s decision to buy Huntington Bancshares in 2024 can be seen as the intersection of macro conviction and micro quality.
On one hand, he had a strong top-down thesis that the U.S. banking sector was on the cusp of a rebound as interest rate pressures eased and gloom lifted.
On the other hand, he sought out specific banks that offered solid fundamentals and leverage to that thesis. Huntington fit the bill perfectly:
Druckenmiller anticipated a friendlier environment for banks with the Federal Reserve shifting from hiking to cutting rates, which normalizes the yield curve and reduce deposit costs. Huntington is especially leveraged to these trends because its earnings are highly sensitive to interest rate improvements. It has capacity to accelerate lending in a better economy, and as a mid-sized bank it could either be a buyer or an attractive acquisition candidate if M&A heats up.
In fact, Druckenmiller’s broad purchase of regionals suggests he may even be positioning for takeover optionality, owning banks that might merge or be bought at premiums. Huntington’s deposit base and strong markets make it either a suitor for smaller banks or a coveted prize for a larger bank someday.
Aligned with his methodology, Druckenmiller wasn’t buying hype but was buying value. Huntington, despite its strengths, was undervalued due to the overhang of 2023’s fears. The stock offered a compelling margin of safety with a dividend yield and earnings yield that looked very attractive in a world of high interest rates.
Essentially, even a status quo scenario would likely not hurt much because Huntington was well-capitalized and profitable but the upside optionality if things improved was significant. This asymmetry of limited downside and strong upside is the kind of setup Druckenmiller historically loves. By the time the crowd realizes the bank sector is recovering, Druckenmiller is likely to be reaping the gains.
Druckenmiller often speaks about being patient and then going “all in” when the odds are skewed in your favor. His aggressive move into banks after shunning them for years is a textbook example that reflects his ability to pivot on the fly too.
A couple of years ago, he was reportedly pessimistic on the economy and even warning of more “shoes to drop” after the initial bank failures. But as data evolved and market prices became enticing, he shifted stance to seize the new opportunity. This flexibility is central to his success over decades.
In Huntington’s case, it is essentially a bet that Main Street banking will bounce back, made by an investor who typically trades macro trends like currencies or indices. That blend of macro vision with micro execution is where Druckenmiller historically has shined brightest.
Stan Is Betting on Solid Balance Sheet + Rising Profits
Stanley Druckenmiller’s purchase of Huntington Bancshares is a statement about where he believes the economic cycle is heading and which assets are poised to benefit. Druckenmiller has signaled that the storm clouds over the banking sector are beginning to part. His decision to buy Huntington is a vote on strong fundamentals, such as a rock-solid balance sheet, rising profitability, and smart management.
True to his track record, Druckenmiller is positioning himself ahead of the crowd. Huntington Bancshares, with its strong fundamentals and leveraged exposure to a banking rebound, sits at the crossroads of his macro foresight and value-driven stock selection.
