Regional Banks: Financial Losers

NEW YORK ( TheStreet) -- Regions Financial ( RF) of Birmingham, Ala., was the loser among large U.S. banks on Thursday, with shares sliding 2.5% to close at $9.88.

The Dow Jones Industrial Average and S&P 500 ( SPX.X) ended with gains of over 1%, while the Nasdaq Composite was up 2%, following comments late on Wednesday from Federal Reserve Chairman Ben Bernanke, indicating his strong support for continued economic stimulus by the central bank. During a question-and-answer session following his speech discussing the most recent Federal Open Market Committee meeting, Bernanke said a "highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy."

The Federal Reserve has kept the short-term federal funds rate in a range of zero to 0.25% since late 2008. Since September, the Fed has been making monthly purchases of $85 billion in long-term securities, in an effort to hold long-term rates down. The market has anticipated a tapering of the central bank's balance sheet expansion, sending the yield on 10-year U.S. Treasury bonds to 2.60% Thursday afternoon, from 1.70% at the end of April.

The yield on the 10-year was down from 2.70% the previous day, which along with the strong overall market action showed Bernanke's words had a soothing effect on investors.

The Department of Labor on Friday said initial unemployment in the U.S. during the week ended July 6 totaled 360,000, increasing from an upwardly revised 344,000 the previous week, and exceeding the consensus estimate among economists polled by Thomson Reuters by 20,000. This development may have lent support to Bernanke's words, in the eyes of market players.

For large U.S regional banks, the story was different, with shares of Comerica ( CMA) of Dallas, KeyCorp ( KEY) of Cleveland and SunTrust ( STI) of Atlanta all showing 2% declines.

JPMorgan Chase ( JPM) and Wells Fargo ( WFC) will kick off earnings season for the nation's largest financial institutions early Friday. Investors will be focusing on executives' comments on how they expect their companies to perform during the second half of 2013 as the yield curve steepens.

Analysts polled by Thomson Reuters on average estimate JPMorgan will report second-quarter earnings of $1.44 a share, declining from $1.59 in the first quarter, but increasing from $1.21 during the second quarter of 2012, when CEO James Dimon first announced the firm's "London Whale" hedge trading losses.

KBW analyst Chris Mutascio on Wednesday said JPMorgan offers the best value to investors among large-cap U.S. banks, because of its discounted valuation to peers and because of its highly liquid balance sheet.

JPMorgan's shares rose 0.6% to close at $55.14.

Wells Fargo is expected by analysts to report second-quarter earnings of 93 cents a share, up a penny from the previous quarter and increasing from 82 cents a year earlier. Investors will be eager to see how much the company's mortgage revenue declined during the quarter.

Unlike its peers, Wells Fargo reports gains on the sale of newly originated mortgage loans when the loans are actually sold, and not when rates are locked on new loans. This means the company is "one quarter behind" its major competitors in reporting declining gains on loan sales. Gain-on-sale margins have been under pressure as long-term rates have risen. Overall mortgage lending volume has also slowed considerably, according to the Mortgage Bankers Association.

Wells Fargo's shares were down slightly to close at $41.89.

With continued uncertainty over the strength of the economic recovery, the direction of long-term interest rates and over the continually changing regulatory environment investors can expect bank executives in their conference call comments to continue focusing on the areas they can control, including cost-cutting.


-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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