Are You Wary of Financial Stocks?

Kimberly Watson, Editor in Chief
August 09, 2012 /

There has emerged a general reluctance by many to become involved in financial stocks. This is primarily due to the various crises in Europe and challenging low interest rates. The unfavorable media headlines have caused national banks to be neglected.

Due to limited exposure to the compromised European monetary system, regional banks emerged from the 2008 economic crisis in the United States with limited damage and mainly intact. The after effects from damaging mortgage-backed securities, stocks and the implosion of the sub-prime mortgage market were survived and relatively untouched. Today, they present solid balance sheets as proof of their resilience. This situation is further supported by a reduction in delinquencies, with reduced loan-losses giving impetuous to performances of various regional banks.

There are various analysts who view stock price disturbance as opportunities. Mid-cap stocks of regional banks were down by an average of six percent over the last quarter because of recurring concerns related to global events. Because of as lack of exposure to risks of this nature and a favored position in the new regulatory paradigm, a variety of potentially appealing opportunities are visible.

Although the regional banks have the appearance of being a lesser risk than the primary institutions there is still the potential of them being susceptible to the recurring form of their loan business. However, stocks market growth demands lending and combining with the smaller businesses could be a preferred factor in the present financial environment. Banks affected negatively because of persistent, particularly low interest rates that create a condensed spread of loans. However, regional banks have the capacity to recover some of the lost revenue because of an increase in the mortgage business.

Worth noting is that there could be an affect on regional banks due to proposed regulations relating to the raising of capital requirements! The capital of banks does remain strong with most of them expected to exceed their capital ratios as determined by the new regulations. For those banks that do not exceed the target in 2012, it is reasonably believed they will do so by the end of 2013.


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