This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Housing Recovery Can't Save the Regional Banks

Updated for SunTrust's net interest margin from earnings released today.

NEW YORK ( TheStreet) -- The mortgage banking business is booming, but regional bank stocks are diving.

Last week when a majority of the regional banks reported earnings, the KBW Regional Banking ETF (KRE) declined nearly 1%.

At the same time the broader Financial Select Sector SPDR (XLF), which includes money center banks and insurance companies in addition to regional banks, increased almost 2%.

Some of the biggest losers among regional banks were BB&T (BBT - Get Report), which declined 8% last week; Huntington Bancshares (HBAN), which was down 7%; and PNC (PNC), which declined a little more than 5% on the week. All three reported earnings last week.

The earnings reports of these and other regional banks (as well as large banks) were characterized by strength in their mortgage banking business, thanks to the recovery underway in the housing market.

Specifically, the most recent housing data showed prices of existing-home sales increased 11.3% in September, while housing starts and permits were much stronger than expected.

These trends, along with the plan by the Federal Reserve to purchase up to $40 billion of mortgage bonds every month, should lead to a continued recovery in the housing market going forward, which in turn will help the mortgage business (led by refinancing fees) at all the banks.

With all the good news on the housing front, you would think that the regional banks would have had better stock performance last week. But the major issue with the earnings reports from the three banks mentioned was the pressure on net interest margins.

The net interest margin, often referred to as NIM, is the difference between the average yield earned on loans and investments and the average cost for deposits and borrowings.

Most banks, not just the regional ones, are experiencing pressure on this line item because of the Federal Reserve's policy to keep its target federal funds rate in a range of zero to 0.25%. This policy has been in place since 2008, and the Fed recently announced that it would keep the rates in that range until at least mid-2015.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BBT $35.38 -0.63%
KEY $12.29 -1.00%
STI $41.73 -0.81%
WFC $50.05 -0.71%
USB $42.70 -1.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs