Are these the best buys?
Crisis of confidence hits regional bank shares By Jonathan Spicer and Juan Lagorio
Mon Sep 29, 3:11 PM ET
Shares of regional banks sank on Monday, with Sovereign Bancorp (SOV.N) and National City Corp (NCC.N) down 60 percent, as investors feared the sector would be steamrolled by the deepening global credit crisis.
As Wall Street sagged after the House of Representatives rejected a $700 billion bailout plan, investors wondered which banks might need a merger partner in order to survive amid the upheaval in the financial system.
And while losses mounted among big U.S. financial institutions such as Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N), the regional banks received the hardest punch in what analysts called a deepening crisis of confidence.
Among losers, Fifth Third Bancorp (FITB.O) dropped 36 percent, FirstFed Financial Corp (FED.N) gave up 44 percent, and KeyCorp (KEY.N) slumped 18 percent. The closely watched S&P Financial index (.GSPF) sank 10 percent.
"There will be a large number of smaller banks that will likely have significant problems across the (U.S.) Southeast and Southwest," said James Ellman, portfolio manager of hedge fund Seacliff Capital.
"Many of those are small enough that the FDIC (Federal Deposit Insurance Corp) can actually seize them and sell them off. ... They do not create a risk to the entire system. That is something different than Wachovia and WaMu."
Washington Mutual Inc (WAMUQ.PK) was shut down by the government last week and its assets sold to JPMorgan Chase & Co (JPM.N).
Earlier Monday, Citigroup Inc (C.N) said it would buy the banking operations of Wachovia Corp (WB.N) -- a deal brokered by the government to ensure "financial and economic stability," said Federal Reserve Chairman Ben Bernanke in a statement.
Michael Sheldon, chief market strategist of RDM Financial Group, said: "There are a number of regional banks which may need help, either because of the weakening mortgage market or simply because of the weakening economy."
"The biggest banks are getting too big to fail," said William Larkin, fixed income manager at Cabot Money Management in Salem, Massachusetts.
The world's central banks redoubled their efforts to revive the paralyzed global financial system through massive injections of cash on Monday, and rescues were engineered for several European banks.
PANIC AMONG INVESTORS
On Monday, the main victim was Wyomissing-Pennsylvania based Sovereign -- a bank with 750 branches in the Northeast and around $79 billion in assets. Shares of Sovereign sank $5.62, or 67 percent, to $2.77, wiping out almost $5 billion of market value.
In addition, Ohio-based National City -- a big player in the Midwest -- fell $2.26 or 61 percent to $1.44, losing $1.7 billion of market value.
National City said in a press release it was better capitalized than Washington Mutual and Wachovia and had less exposure to troubled mortgage loans. The bank also said it had no intention or need to raise additional capital.
Fifth Third Bancorp -- with 5.8 million customers and 1,300 locations in the East -- was off $6.09 to $10.07, while KeyCorp lost $2.70 to $12.00, and FirstFed slumped $4.49 to $5.55.
(Editing by Brian Moss and John Wallace) |
