Super Regional Banks Can Be Traded, But Are Not Great Investments

|
Includes: BBT, MTB, PNC, STI, USB
by: Richard Suttmeier

Summary

BB&T Corp. is above my annual value level of $50.38, which held on weakness into April 2.

M&T Bank is trading around its 200-day simple moving average of $173.39, below my annual pivot of $182.77.

PNC Financial held its semiannual value level at $140.87 as a trading opportunity on May 29.

SunTrust held its annual value level at $64.41 at its 2018 low of $64.32 set on Jan. 6.

U.S. Bancorp is the fifth largest U.S. bank and has been below a 'death cross' since April 11 with its semiannual pivot of $54.07.

The Loosening Of The Volcker Rule Will Come Back To Bite Bank Regulators

In today's volatile world bank, regulators have not been able to detect problems before they occur. The New York Federal Reserve could not detect the scams at Wells Fargo (NYSE:WFC) when they vetted the bank and named it a primary dealer on April 18, 2016. Why have they not removed them as additional claims and fines accumulate?

On June 1, S&P downgraded Deutsche Bank (NYSE:DB) to a credit rating of BBB+ from A- on concerns that the global bank will have a difficult time revamping its operations including their U.S. operation which is a primary dealer. Should the New York Fed remove them from the primary dealer list?

The loosening of the Volcker Rule makes it more difficult for the New York Fed to monitor the risks of the primary dealers. There are 23 primary dealers who must be market-makers to each other, which puts their firms' capital at risk.

Another issue for regulators is the size of the Notional Amount of Derivatives concentrated on the balance sheets of our nation's top seven banks. In the first quarter of 2018, FDIC data show that derivative exposures increased by 18.7% sequentially to $206 trillion. That's a dangerous increase for a single quarter.

Most of the largest global banks have clearly become 'too big to regulate' which is not the time to loosen the Volcker Rule. Step one is to break up the 'too big to fail' money center banks. Step two is for the New York Fed to remove banks from their list of primary dealers. Step three is to disallow the derivative structures that are 'too difficult to explain'.

Additional Risks For The Five Super Regional Banks

The super-regional banks should be advised to return to their core business of real estate lending on Main Street USA.

  • 1- to 4-Family Residential Mortgages are 7.7% below the level of the fourth quarter of 2007 and totaled $2.07 trillion at the end of the first quarter of 2018.
  • Home Equity Loans have declined in every quarter since the end of 2007 despite record home prices. At $398 billion at the end of the first quarter of 2018, HELOCs are down 3.1% sequentially and down 34.4% since the end of 2007.
  • Credit Card Debt remains on the rise but not those on bank balance sheets. This portion of debt declined to $820 billion in the first quarter, down from $865 billion in the fourth quarter of 2017. Much of this could be write-downs thanks to what I will call subprime lending. Some consumers who took advantage of those zero percent teaser rates and then suffered sticker shock when their rates popped to 15.99% to 24.9% fourteen months down the road are now in default. Each state has its own maximum usury rate and legislation should be considered to make rates more reasonable in the future across the country.

Here's The Scorecard For Five Super-Regional Banks

Scorecard For Five Regional Banks

BB&T Corp. (NYSE:BBT)

Daily Chart For BB&T

Courtesy of MetaStock Xenith

The daily chart for BB&T shows how the stock could have been bought at my annual value level of $50.38 on April 4. This remains the level at which buy on weakness. Reduce holdings on strength to my monthly and quarterly risky levels of $57.00 and $58.08, respectively.

M&T Bank (NYSE:MTB)

Daily Chart For M&T Bank

Courtesy of MetaStock Xenith

The daily chart for MTB shows the stock above its 200-day simple moving average of $173.47. Traders should buy weakness to my semiannual value level of $166.77 and reduce holdings on strength to my annual pivot of $182.78 which was a magnet between Jan. 18 and May 23. M&T is in correction territory.

PNC Financial (NYSE:PNC)

Daily Chart For PNC

Courtesy of MetaStock Xenith

The daily chart for PNC shows that the stock held my semiannual pivot of $140.87 on May 29 as a buy on weakness opportunity. Traders should buy weakness to my semiannual and annual value levels of $140.87 and $135.39, respectively and reduce holdings on strength to my monthly and quarterly risky levels of $158.78 and $163.23, respectively. PNC is in correction territory.

SunTrust (NYSE:STI)

Daily Chart For SunTrust

Courtesy of MetaStock Xenith

The daily chart for SunTrust held its annual value level of $64.41 on Jan. 6 as a buy on weakness opportunity. Traders should buy weakness to my annual and semiannual value levels of $64.11 and $63.11, respectively and reduce holdings on strength to my monthly and quarterly risky levels of $72.86 and $77.74, respectively.

U.S. Bancorp (NYSE:USB)

Daily Chart For USB

Courtesy of MetaStock Xenith

The daily chart for USB shows the stock below a 'death cross' since April 11 when the 50-day simple moving fell below the 200-day simple moving average indicating that lower prices lie ahead. The stock closed that day at $50.55. The stock is now above its 50-day SMA at $50.59 and below its 200-day SMA at $53.10. Traders should buy on weakness to the 200-week simple moving average of $46.75 and reduce holdings on strength to my monthly and semiannual risky levels of $52.09 and $54.07, respectively. USB is in correction territory.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.