NEW YORK (TheStreet) -- The regional banks have surged along with the rest of the financial sector so far in 2010, and now it's time to see if the results can keep up with the stocks.
The view that credit costs reached an inflection point in the first quarter fed the recent rally in the sector, along with an anticipated mitigation of losses and increasing confidence about the overall recovery in the U.S. economy, but the run-up has made the individual stocks that much more vulnerable to any disappointments in the numbers. With the KBW Bank Index (BKX), which includes twenty of the largest U.S. regional banks in addition to the big four money-center banks, up almost 30% through Thursday vs. a gain of around 6% for the S&P 500 index, the pressure is on. The smaller regionals have outperformed as well with the KBW Regional Banking index (KRX), featuring another 50 companies, up some 23% over the same period.
Specifically, investors will be looking at the level of loan loss reserve additions needed, which has crimped earnings power over the last two years. Minimal loan-loss provisioning will be the biggest potential lever in terms of sequential earnings improvement, analysts say. Wall Street will also want to see improvements in delinquency levels and declines in growth of nonperforming assets.
Banks' so-called normalized earnings, essentially profit trends before factoring in loan loss provisions and taxes, will also start coming into focus. Wall Street wants to get some clarity on when banks will be getting back to the core business of being banks, i.e. making loans and taking in deposits.This will be more easily identified in the regional banks since they are not as diversified as the large money-center names -- JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C) -- which have multitude of capital markets businesses that contribute to the bottom line. Large regional banks including BB&T (BBT), Fifth Third Bancorp (FITB), KeyCorp (KEY), Regions Financial (RF), SunTrust Banks (STI), U.S. Bancorp (USB), as well as many smaller names, will begin unveiling their first-quarter numbers the week of April 19, so the verdict will be in shortly and select names could start to break away from the herd.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV