For Immediate Release
Chicago, IL – October 14, 2009 – Zacks.com announces the latest Industry Outlook. Today, Zacks Equity Research discusses the U.S. Banks sector, including Fannie Mae (FNM), Freddie Mac (FRE), Commerce Bancshares Inc. (CBSH), Wilmington Trust Corporation (WL) and Zions Bancorp (ZION).
Here is the latest on the U.S. Banks sector:
While the state of the economy is showing signs of recovery, a lot remains to be done. The Treasury continues to have huge direct investments in institutions like Fannie Mae (FNM) and Freddie Mac (FRE).
We expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans. Also, as a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting their profitability. We think that the financial crisis is far from over and we have to wait for a while to write the end line of the crisis story.
The Treasury’s requirement of focusing banking institutions towards higher-quality capital will help banks absorb big losses. Though this would somewhat limit the profitability of banks, a proper implementation would bring stability to the overall sector and hopefully address bank failures.
We favor Commerce Bancshares Inc. (CBSH) in this space since this company is one of the few names that did not report losses even during the current financial crisis. We believe that Commerce is one of the best capitalized banks in the industry and will generate positive earnings throughout the credit cycle. While the bank had a decent growth in deposits in the most recent quarter, trends in its credit metrics were in the negative direction.
The financial system is going through massive de-leveraging. Banks in particular have lowered leverage. The implication for banks is that the profitability metrics (like returns on equity and return on assets) will be lower than in recent years. Furthermore, the current crisis has dramatically accelerated the consolidation trend in the industry. As a result, failure of a large financial institution will be a major concern in the upcoming quarters as weaker entities are absorbed by larger ones.
We think banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL) and Zions Bancorp (ZION), will remain under pressure.
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