How to Play Bank Reform: Q&A

NEW YORK (TheStreet) -- Peter Sorrentino, vice president at Huntington Funds and the senior portfolio manager to the Huntington Real Strategies Fund, says the myriad of financial sector regulatory reform proposals making their way through Congress presents an opportunity to banks.

Sorrentino, who spoke with TheStreet earlier this week, says that investors have several ways to play the reform trade, including buying shares of safe, straightforward lenders like UMB Financial (UMBF) and Hudson City Bancorp (HCBK), or investing in a well-diversified company like JPMorgan Chase (JPM). Or investors can simply buy into "the smartest guys in the room," represented by shares of Goldman Sachs (GS).

Peter Sorrentino, senior portfolio manager of Huntington Real Strategies Fund.

TheStreet: How attractive is the bank sector given the reform overhang right now?

Sorrentino: It creates an opportunity. Anytime you've got this kind of uncertainty, there is a hesitation to buy into the group. We saw that with health care over the last year and a half. That uncertainty, while it's lingering out there, does create some very good opportunities within the sector and you could play it a couple of different ways. You could play it on assets being undervalued or you could play it on just buying very high-quality names that, once the smoke clears, are really going to take advantage of the competitive environment.

Which proposal has you most concerned in regards to limiting bank profitability?

The question on oversight for the consumer. This is one of those things where it's well intentioned but it's the law of unintended consequence. The change of the Community Reinvestment Act of 1994 created a huge market in subprime, which sort of opened the door to the debacle that we just experienced. Again, well-intentioned to get people into homes, but the net effect was that it ended up with banks lending money to people that couldn't pay it back. The same thing could be said for other changes that may come down the road. If there are businesses out there that are not profitable, what will happen is that the banks will simply quit supplying credit to those areas or quit doing business in those areas. What will happen is if this in fact comes into place and these kinds of restrictions are there, I think you're going to see an odd landscape of the variety of products and who they're offered to.