Regional Banks Are Feeling the Pain

There’s a big divergence in performance among regional U.S. banks, with some doing much better than others. As a group, though, the regional banks are far from immune to the credit crisis and severe recession, according to Standard & Poor’s Credit Research.

Higher net interest margins helped many of the regional banks achieve higher net interest income in the fourth quarter. But this was offset to a large degree by sharply rising provisions for loan losses.

However, as the economic recession deepens into 2009, we believe that all of these banks and thrifts will see their asset quality deteriorate and their earnings pressured.

Nevertheless, we expect the magnitude of the deterioration to vary by company and this relative performance differential to remain pronounced.

The most distressed areas for residential construction loans, and by extension local banks, continued to be Florida, California, Nevada, Arizona and Georgia.

S&P expects a sharp rise in provisions for commercial real estate loans in 2009, especially related to retail, office and hospitality properties.

The ratings agency said government programs helped liquidity and capital at the banks at the end of 2008. Nevertheless, ratings actions have largely been negative in 2009, with two downgrades in January for Wilmington Trust Corp. (NYSE: WL) and Colonial BancGroup Inc. (NYSE: CNB) and an upgrade for FirstMerit Corp. (NASD: FMER).

For details see “U.S. Regional Banks’ Performances Are Mixed, But Most Feel The Pain.”

Comments

[Mark Bern:]

Capitaism will be hard at work in the banking sector during 2009. Poorly managed banks will be forced into bankrupcy at an increased rate over the year as employment, home values, and commercial real estate utilization rates continue to deteriorate. But this is actually good for the economy as a whole because it rewards the well-managed banks with opportunities to expand market share while ridding us of the weaker, poorly managed competition.

This same scenario wil be replayed across all industries in the economy as always happens in a recession. I don't think our political leaders understand the basic principals of free market principles. This is not to say thay every company that is experiencing problems should be left to die. I am simply saying that bail outs with no accountability are not the answer. Government sponsored and supported bankruptcies may end up being the only approach for those companies that are deemed too big to fail. Better regulatory oversight and a reexamination of laws that did not allow companies to become so big (anti-trust) relative to their respective markets. Greater transparency in financial reporting. Separation of depository banks from investment houses. Limits of some sort and regulation at a minimum of new forms of investment vehicles. These are all areas that need to be considered, not necessarily enacted as law. But the practices that got us into this mess nedd to be indentified and a means of discouraging activities before they get out of hand need to be identified. It will, IMHO, take a long time to sort all this out and get the economy back on track to growth. But eventually it will happen.

In the end, we will have a stronger economy ready to compete better in the global economy. It's just very painful and ugly getting there.

Mar 10 03:07 PM

[William Cowie:]

Good perspective in the article and I agree with Husker Mark. What would be even better is if the healthy reagional banks are allowed to pick at the carcasses of the Wall Stree dinosaurs. We might end up with a better financial system away from Wall Street...

Mar 12 12:55 AM