That isn't good for the banks' bottom lines. According to a study by Jefferies, of 24 regional banks, eight have recently reported a decrease in NIM that was north of 10 basis points (or one tenth of a percent). That is considered a large decline in the industry. This decline is leading management teams at the regional banks to reduce their earnings outlooks, and that's driving these banks' stocks lower.
In the most recent case, SunTrust (STI), reported earnings this morning that included an 11 basis point decline in net interest margin to 3.38%.
While the NIM pressure is certainly a key driver of performance in the group, slowing loan growth is also an issue. Even with low interest rates, businesses are less interested in taking out loans to expand, because of the significant uncertainty surrounding the future of the tax code, health care costs and the fiscal cliff.
It's going to a tough operating environment for the group heading into 2013. That said, there continue to be some bright spots. For instance, Keycorp (KEY) was a standout when it released third-quarter earnings that were characterized by an improving net interest margin and impressive loan growth (up 5.1%) for the fifth consecutive quarter.The company also has a restructuring plan underway that management reiterated would lead to $150 million to $200 million in cost savings. What's more, its shares trade at a significant discount to tangible book value, making them an attractive addition to a portfolio. Two of the higher quality regional bank stocks that are also worth looking at are Wells Fargo (WFC) and U.S. Bancorp (USB). Both of these banks have a history of strong loan growth and solid capital positions. They have consistently returned capital to their shareholders and offer some of the best return on equity in the industry. These two stocks certainly aren't cheap and trade at a premium because of their high quality. But, if you have a longer investment horizon, the return on equity is a solid reason to consider investing in them, even if you don't buy them at the best price. -- Written by Lindsey Bell in New York. >To follow the writer on Twitter, go to Lindsey Bell.
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