Interest Rate Roundup

Friday, January 04, 2008

Regional banking sector meltdown

There's a lot of noteworthy activity out there in the market. But one thing jumps out at me more than anything today -- the meltdown in regional banking shares. The chart above shows the stock market action in the RKH -- the Regional Bank HOLDRs Trust Exchange Traded Fund. It owns many of the country's largest regional banks.

If you've been following my posts, you know that several regionals and super-regionals are getting hammered by the unfolding credit problems (See these posts on KeyCorp, Regions Financial, and National City).

These guys are seeing delinquencies rise in their home equity and residential mortgage loan books, and they're seeing many of their commercial real estate development clients (builders of homes and condos) struggle. They're being forced to raise loan loss reserves as a result, and that's hammering earnings prospects and stock prices across the sector.

Here's a telling quote about just how tough the market is right now from the head of Regions (from a Bloomberg story, with my emphasis added):

Residential developments "that looked very viable and were having good sales activity four or five months ago have zero activity today
,"' Chief Executive Dowd Ritter said yesterday on a conference call. Regions is holding loans rather than taking 40 percent to 50 percent losses by selling the loans in today's depressed secondary market, he said.


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