By Louis Navellier of Investor PlaceIn 1999, Congress repealed a piece of Depression-era legislation commonly referred to as the Glass-Steagall Act. It was intended to reduce risk at banks by limiting investment activities. In the wake of the financial crisis, this move has taken a lot of heat -- and not without reason. After all, the repeal of Glass-Steagall enabled commercial lenders like Citigroup ( C) to dip into the kinky investment acronyms we have come to despise -- CDOs, SIVs and other items that resulted in huge losses at Citi and others. President Obama's proposal would prevent commercial banks from ever taking such bets again and putting depositors and the credit market at risk. The president has also proposed limits on financial mergers, in an effort to prevent the bailout of another bank that is "too big to fail."
The Big Opportunity for InvestorsFor a long time, big banks have focused on their investment divisions because that's where the money is. After all, why would JPMorgan Chase kill itself making dozens of small-business loans when it posted a record profit $11.7 billion for all of 2009, thanks in large part to its investment banking operations? Regional banks just can't compete with profits like that. But if Obama forces banks to separate their investments and hedge funds from commercial operations, the playing field has suddenly been leveled. In fact, since the bigger banks have been widely criticized for high fees and poor customer service for smaller clients, there is reason to believe a rebirth of regional banks is likely. If Obama gets his way, this could present a huge opportunity for investors. Whatever happens, one thing is clear: The White House has declared war on the big banks, and the financial sector will remain in turmoil as a result until some truce is reached. "Much of the turmoil of this recession was caused by the irresponsibility of banks and financial institutions on Wall Street," President Obama said in a radio address on Jan. 16. "These financial firms took huge, reckless risks in pursuit of short-term profits and soaring bonuses." Those are fighting words. And if the president has his way, it's a fight the big banks are going to lose.
Four Bank Stocks Boosted by Glass-Steagall 2.0To capitalize on this trend, I advise investing in fundamentally superior regional banks. Here are four such banks I expect to do very well in the coming months as a result of these planned changes in the financial industry:
Great Southern Bancorp ( GSBC) -- This thinly traded regional bank sees a volume of only about 30,000 shares a day, but is a great buy because it has stuck to low-risk consumer banking in the Missouri area and weathered the credit crisis very easily.
CNB Financial ( CCNE) -- CNB is an even smaller outfit, with a volume of only a few thousand shares a day and only a few dozen full-service branches around Pennsylvania.
National Bankshares ( NKSH) -- Serving southwestern Virginia, this small regional bank shares the low volume and small market cap of the previous two picks.