Washington Trust: Office Panic Appears Overdone

The market is treating this as a binary CRE blow-up, but the more important signal is that credit stress is still idiosyncratic rather than system-wide. A 12% CET1 ratio gives meaningful absorbency, and for a regional bank that can still compound NIM, the first-order equity drawdown likely reflects position-unwind behavior more than a fundamental reset in earnings power. That creates a setup where the stock can rebound sharply if subsequent disclosures show the nonaccruals are isolated and reserves are building faster than charge-offs.

The second-order risk is not the office exposure itself, but the cost of capital repricing that follows any headline nonaccruals. Funding spreads can widen before actual losses materialize, compressing the benefit of higher NIM and forcing banks to preserve liquidity instead of leaning into growth; that tends to hit smaller regionals hardest over the next 1-3 quarters. If management is forced to be conservative on buybacks or lending, the equity may remain capped even if credit metrics stabilize.

Consensus appears to be extrapolating two loans into a franchise-level problem, which is usually where the best long ideas emerge in bank dislocations. The key variable is not whether CRE remains pressured, but whether realized losses stay comfortably inside capital and reserve coverage. If so, the stock’s asymmetry shifts: downside becomes tied to a limited additional provisioning cycle, while upside comes from multiple recovery as the market stops pricing a tail-risk event.

The cleanest way to express this is with a mean-reversion trade that monetizes fear while limiting exposure to a true CRE deterioration. This is a months-long catalyst path, not a days-long trade: the next earnings update and any additional nonaccrual migration will determine whether the discount is excessive or deserved. In the near term, the risk is another office headline; in the medium term, the opportunity is that this becomes a “one bad quarter” story rather than a structural credit issue.