Wednesday July 22, 09:09 PM
Regional banks weak link in US financial system
By Germain Moyon
NEW YORK (AFP) - Several large US regional banks recently have reported disappointing quarterly earnings, as a lack of market activities widens their exposure to bad loans and the housing slump.
The troubles of these banks, essential gears in getting the recession-mired economy back on track, contrasts with the spectacular multibillion-dollar profits posted by their much larger rivals, such as Bank of America (NYSE: IKJ - news) , JPMorgan Chase or Wells Fargo.
But these megastars "were getting benefits from the trading" in markets, which have put in strong gains since March, said Marc Pado, an analyst at Cantor Fitzgerald.
"The small community banks just don't have this ability, so in terms of the loans, it's not that they had worse loans, they lack the diversity, the advantage of where things are better in the economy," Pado said.
"The mortgage industry, the home loans, they haven't really turned around," he added.
The big banks have attributed their resurgent profitability largely to an equity market rally from early March. Their smaller siblings have underlined their pain from rising loan defaults.
KeyCorp, based in Ohio, announced Wednesday a net loss of 236 million dollars in the March-June period.
KeyCorp, one of the 10 leading US banks deemed insufficiently capitalized by federal "stress tests," said the quarterly loss was largely due to an 850-million-dollar increase in the provision for loan losses.
Georgia-based SunTrust Banks (NYSE: STI - news) posted a loss of 164.4 million dollars after taking a 962.2-million-dollar provision for loan losses.
"Clearly, recession-related costs continue to impact our results," said James Wells, chairman and chief executive of SunTrust.
On Tuesday, Regions Financial (NYSE: RF - news) , an Alabama-based bank, said it had a loss of 244 million dollars.
Even US Bancorp, the Minnesota-based parent of big bank US Bank, said that it had profit of 471 million dollars but that its loan-linked losses had continued to climb, although at a more moderate pace.
And behind the top-line profit of BB&T, based in North Carolina, of 208 millions dollars, was a bad-loan charge of 701 million dollars.
"The regional banks have good old-fashioned loans that experience losses over a longer period and come later," said Tanya Azarchs of ratings agency Standard & Poor's, explaining why these banks, which were relatively spared last year amid the global financial crisis, are suffering now while their bigger rivals thrive.
The current period of loan losses at elevated levels was expected "to last at least a couple of years," she told AFP.
In a sign of the persistent challenges facing the reeling financial system, 57 banks have been closed by federal authorities this year, with a concentration of the bank seizures in states hardest-hit by the real-estate crisis, such as California and Florida, after the bubble burst more than two years ago.
"Most of the the banks are sounding hopeful about the consumer credit portfolio maybe deteriorating at a slower rate," Azarchs said.
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