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Banks Unshakeable Uncertainty

NEW YORK ( TheStreet) -- For bank stock investors, uncertainty is now the name of the game and will likley grip the sector for the foreseeable future.

"Year-to-date, banks have been the best performing asset class; since April, [they're] the worst performing asset class," Eric Heaton, managing director and co-head of financial institutions group at Deutsche Bank, (DB) said earlier this week. Heaton was speaking during a panel presentation at the SNL Financial Bank M&A Symposium held in New York.

The Keefe, Bruyette & Woods bank index (BKX), which tracks the top 25 U.S. banks, is down nearly 17% since April 30 after posting a roughly 30% rise to that point.

As of this date the BKX is up roughly 8% for the year

Despite some of that uncertainty alleviating with the signing of the Dodd-Frank Act by President Obama in July and new international capital standards coming out of Basel III last month, bank stocks are still in flux.

According to Jim Meyer, the chief investment officer at Tower Bridge Advisors in West Conshohocken, Pa., that's not about to be alleviated anytime soon.

"There are two overriding issues with the banks right now: FinReg and the flattening yield [on then U.S. Treasury bond] that both work against banks stocks until they're resolved," Meyer says, adding that his firm is underweight the bank sector. "The environment is still hostile and will likely be hostile for longer than not and so we stay away."

Meyer continued: "We know that as [FinReg] rules are contemplated and written that there are going to be a lot of speed bumps and other issues along the way. But the other issue just fundamentally, banks borrow at one rate and lend at another and when the yield curve flattens, they make less money."

"The banks are going to be playing defense for a lot longer until they know the rules of the game. And it's not really the economy. ... The ability to clean up yesterday's problem and start anew just gets stretched out for longer," Meyer says.
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