Regional Banks' Stocks Are Sliding Despite A Pending Rate Hike By The FOMC

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Includes: BBT, MTB, PNC, STI, USB, WFC, XLF
by: Richard Suttmeier

Summary

BB&T Corp, M&T Bank and PNC Financial peaked in late-February, mid-March and are now under “death cross” formations.

SunTrust Banks is the strongest performing regional bank so far this year but its well below its all-time high of $94.18 set in May 2007.

US Bancorp peaked in January and is below my quarterly and semiannual risky levels.

The FOMC will be announcing a rate hike onWednesday which should be positive for regional banks but that’s not the case,so I present reasons why?

Why are regional banks not on the rise given a higher federal funds rate even when Wall Street is telling investors to buy bank stocks?

Let's look at FDIC Data for the second quarter Q2 2018. This data is called the Quarterly Banking Profile, which I believe is the balance sheet for the U.S. economy.

Real estate lending is an important business for the five super regional banks that I chart today.

Total real estate loans are on the rise but lag the 2007 level by 4.5% as mortgages, C&D loans and HELOCs lag potential in what most economists say is the strongest economy in decades.

The PHLX Housing Index (HGX) set its 2018 low of 293.83 on Monday, Sept. 24 and is in bear market territory 20.4% below its all-time intraday high of 369.15 set on Jan. 24. Monday’s low matched the July 2005 high of 294.00.

The KBW Bank Index (BKX) closed Monday at 108.70 which is 7.2% below its Jan. 29 high of 117.14. This index remains below its Feb. 2007 all-time high of 121.00.

The housing market and banking system should be leaders in today’s strong economy, but they lag significantly.

One of the major roles of the Federal Deposit Insurance Corporation is to guarantee deposits, which is limited to $250,000 for each bank in which individuals hold their funds. The FDIC-insured financial institutions provide the funds to back this guarantee via periodic assessments. The Deposit Insurance Fund is on the rise but so are insured deposits setting up a potential squeeze for the larger banks beginning in 2019.

Net interest income rose to $134.1 billion in the second quarter up 8.7% year over year. This positive is offset by comments made by FDIC Chairman Jelena McWilliams; “The banking industry experienced continued improvement in net interest income, noninterest income and loan performance this quarter. However, the interest-rate environment coupled with competitive lending conditions have led to heightened exposure to interest-rate, liquidity, and credit risks. The industry must continue to position itself to be resilient through economic cycles.”

The FDIC Quarterly Banking Profile for The Second Quarter Of 2018

Data From The FDIC Courtesy of the Federal Deposit Insurance Corporation

The number of FDIC-insured financial institutions continues to decline, and the banking system is not creating new jobs. The number of employees in the banking system is 6.2% below the level at the end of 2007. Wells Fargo (NYSE:WFC) recently announced that they planned to reduce their 265,000 headcount by 10% over the next three years.

Total Assets was reported at $17.53 trillion in the second quarter virtually flat sequentially but up 34.5% since the end of 2007.

Residential Mortgages (1 to 4 family structures) represent the mortgage loans on the books of our nation’s banks. Production is 6.9% below the pace at the end of 2007.

Nonfarm / Nonresidential Real Estate Loans represent commercial real estate lending unrelated to community development. This category of real estate lending is up 46.8% from the end of 2007.

Construction & Development Loans represent loans to community developers and homebuilders to finance planned communities. This was the Achilles Heel for community banks and the reason why more than 500 banks were seized by the FDIC bank failure process since the end of 2007. C&D loans have been on the rise in recent quarters but is 44.8% below the level at the end of 2007.

How many community developments are under water in the wake of Hurricane Florence? The National Association of Home Builders have not yet published this information, but they told me that 6% of national construction is in North Carolina and another 6% is in South Carolina and Virginia combined. This puts 12% of the housing market in question. Does this imply that 12% of economic growth could be hurt by Florence fury?

Home Equity Loans represent second lien loans to homeowners who borrow against the equity of their homes. Regional banks typically offer HELOCs, but these loans continue to decline quarter over quarter despite the dramatic rise in home prices. HELOC lending is down 35.9% since the end of 2007.

Notional Amount of Derivatives where many trading risks reside rose by 1.9% in the second quarter sequentially following a dangerous rise of 18.7% in the first quarter as stipulations of the Volcker Rule softened. This risk exposure now totals $209.8 trillion up 26.3% since the end of 2007.

Deposit Insurance Fund represents the dollars available to protect insured deposits. These monies are funded by all FDIC-insured institutions via annual assessments, with the largest banks paying the largest amounts. The second quarter DIF balance rose to $95.07 in the second quarter.

Insured Deposits rose to $7.358 trillion in the second quarter up 71.4% since the end of 2007 as savors seek the deposit insurance guarantee. By the end of September 2020 this fund is mandated to be 1.35% of insured deposits. The current level slipped to 1.29% from 1.30%. If the 1.35% ratio is not reached by the end of 2018 the largest banks will be assessed to close the gap.

Here’s the Scorecard for the Five Super Regional Banks I have been covering.

Scorecard For Five Regional Bank Here are the weekly charts and the key trading levels.

BB&T Corp (NYSE:BBT)

Weekly Chart For BBT Corp Courtesy of MetaStock Xenith

The weekly chart for BBT is negative with the stock below its five-week modified moving average of $51.29 and well above its 200-week simple moving average or “reversion to the mean” at $42.81. The 12x3x3 weekly slow stochastic reading is projected to slip to 37.93 this week down from 40.55 on Sept. 21.

Given this chart and analysis, my trading strategy is to buy weakness to my annual and semiannual value levels of $50.38 and $48.47, respectively, and reduce holdings on strength to my monthly and quarterly risky levels of $55.07 and $58.69, respectively.

M&T Bank (NYSE:MTB)

Weekly Chart For M&T Bank Courtesy of MetaStock Xenith

The weekly chart for MTB is negative with the stock below its five-week modified moving average of $173.78 and well above its 200-week simple moving average or “reversion to the mean” at $142.94. The 12x3x3 weekly slow stochastic reading is projected to fall to 55.93 this week down from 64.06 on Sept. 21,

Given this chart and analysis, my trading strategy is to buy weakness to my semiannual value level of $169.20 and reduce holdings on strength to my annual and monthly risky levels of $182.77 and $188.37, respectively.

PNC Financial (NYSE:PNC)

Weekly Chart For PNC Financial Courtesy of MetaStock Xenith

The weekly chart for PNC is negative with the stock below its five-week modified moving average of $142.67 and well above its 200-week simple moving average or “reversion to the mean” at $111.93. The 12x3x3 weekly slow stochastic reading is projected to slip to 61.18 this week down from 61.60 on Sept. 21.

Given this chart and analysis, my trading strategy is to buy weakness to my semiannual and annual value levels of $137.59 and $135.29, respectively, and reduce holdings on strength to my monthly and quarterly risky levels of $149.78 and $174.76, respectively.

SunTrust (NYSE:STI)

Weekly Chart For SunTrust Banks Courtesy of MetaStock Xenith

The weekly chart for STI is negative with the stock below its five-week modified moving average of $71.23 and well above its 200-week simple moving average or “reversion to the mean” at $51.52. The 12x3x3 weekly slow stochastic reading is projected to fall to 63.03 this week down from 73.32 on Sept. 21.

Given this chart and analysis, my trading strategy is to buy weakness to my semiannual and annual value levels of $65.95 and $64.41, respectively, and reduce holdings on strength to my monthly and quarterly risky levels of $74.99 and $77.83, respectively.

U.S. Bancorp (NYSE:USB)

Weekly Chart For U.S. Bancorp Courtesy of MetaStock Xenith

The weekly chart for USB is positive but overbought with the stock above its five-week modified moving average of $53.82 and well above its 200-week simple moving average or “reversion to the mean” at $47.59. The 12x3x3 weekly slow stochastic reading is projected to rise to 88.22 this week up from 87.90 on Sept. 21 with both readings well above the overbought threshold of 80.00.

Given this chart and analysis, my trading strategy is to buy weakness to my semiannual monthly value levels of $51.83 and $51.68, respectively, and reduce holdings on strength to my annual and quarterly risky levels of $60.27 and $60.87, respectively.

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.