logo
Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?

Register
    

 


Regional Banks are the New Black

  +Follow November 26, 2013 9:56AM
Share:
Tickers Mentioned:

In about any industry operating in a free market system, the end game is market consolidation. In most nascent fields, it starts with a lot of small companies competing. Then the weak are culled from the herd, and there are fewer, larger companies. After awhile, there are even fewer. Eventually, the biggest three or four end up duking it out pretty much nonstop, and sometimes ending with just one Globochem-like behemoth ruling an entire industry. At that point, the government steps in to level the field, and the Standard Oils and Bell Telephones get broken up, to begin the whole cycle anew.

But something fascinating is happening in the world of banking. While there are unquestionably major, long-established market leaders in the US – the “Big Four” of Bank of America (BAC) , Wells Fargo (WFC) , JP Morgan Chase and Co. (JPM) and Citigroup (C) – the financials sector is experiencing something of a re-emergence from the little guys. An indie revolution, if you will.

In an industry literally driven by the bucks, it makes sense that the banks with the most money would be able to effectively squeeze out the competition without blinking an eye. But both customers and investors continue to propel regional banks, which so far have had a stellar 2013. To illustrate this success, look at investments that track a wide swath of the regional bank industry. The well diversified exchange traded fund SPDR KBW Regional Bank ETF ($KRE), which tracks 78 different regional bank, is up an impressive 41.51 percent on the year.

In a market that logically should be dominated by the big boys, why are regional banks not just surviving, but thriving? To answer that question, it helps to answer two other questions: why do customers still use regional banks, and why do investors continue to invest so heavily into them?

The Customer Case for Regional Banks

Regional banks tend to be friendlier to customers and offer surcharge-free ATM transactions. For the average customer, that’s pretty much all they want out of a bank. Lower prices attract more customers.

And how can regional banks, who have far less capital to work with, undercut the Buig Four on prices? Equities.com’s quantitative research analyst Nicholas Bhandari explained it as being a result of the Big Foiur being “squeezed for cash. (The Big Four’s) lines of business are so diversified. So the reasons they’re getting squeezed may have nothing to do with the commercial banking sector.”

In short, how they treat customers is not necessarily tied into how the economy is doing. Bhandari pointed out that in 2013, with the economy improving, “some of these regional banks can actually give customers better interest rates, and not charge for as many things, and they turn out to be better options” for customers.  

But it’s not just the tangible prices that attract customers. The gut feeling of trust continues to drive customers into picking smaller banks, with Bhandari saying simply “Regional banks are comfortable. And customers trust them more”

The Investor’s Case for Regional Banks

That diversification of the Big Four’s business model that distorts the relationship between the performance of the economy and the performance of those stocks is also what draws retail investors to regional banks.  Regional banks, in their lack of diversification into complex investment banking areas, tend to be cleaner plays with less unexpected risks.

Bhandari explained that “The Big Four have their fingers in so many different industries that it’s almost impossible to determine their risk exposure, when they’re going to take a huge trading loss. You’re not getting a pure play on commercial banking – even with Wells Fargo it’s a little wishy-washy. With regional banks, you’re getting a pure play on the banking industry, which is almost a pure play on the economy.” So regional banks, and to a wider extent regional bank ETFs, continue to be popular with retail investors who like a simpler, less opaque play on the market.

So when the economy is doing well – as it is in late 2013 – regional banks follow suit. As the economy continues to improve, regional banks should carry on defying the overarching trend of capitalism and encroach on the established market leaders.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


Signup for our daily newsletter and get our best articles emailed right to you!

Results for bac
ProTradersNews
5 Sep 15 09:12:02
$BAC $MA $V $C $USB $AAPL $TGT: From stripes to chips: How banks battle card fraud: http://t.co/m4DuzZq5nQ
US Banking News
5 Sep 15 08:48:52
Investment Analysts’ Updated EPS Estimates for September, 5th $BAC, BLT, CAVM, HFC, JNPR, NUAN, PVH, RIG, TCB, TWTR http://t.co/wjKLhdMm8n
US Banking News
5 Sep 15 08:45:58
$BAC,BLT,CAVM,HFC,JNPR,NUAN,PVH,RIG,TCB,TWTR - Investment Analysts' Updated EPS Estimates for September, 5th #BAC… http://t.co/A4dgsHuiQt
Ticker Report
5 Sep 15 08:41:51
Investment Analysts’ Updated EPS Estimates for September, 5th $BAC, BLT, CAVM, HFC, JNPR, NUAN, PVH, RIG, TCB, TWTR http://t.co/FCzsN8Ns6t
Sleek Money
5 Sep 15 08:35:54
Investment Analysts’ Updated EPS Estimates for September, 5th $BAC, BLT, CAVM, HFC, JNPR, NUAN, PVH, RIG, TCB, TWTR http://t.co/MWcltqvDZ4
Consumer News
5 Sep 15 08:34:59
Investment Analysts’ Updated EPS Estimates for September, 5th $BAC, BLT, CAVM, HFC, JNPR, NUAN, PVH, RIG, TCB, TWTR …
Consumer News
5 Sep 15 08:19:31
Bank of America Stock Rating Reaffirmed by Oppenheimer $BAC http://t.co/2S5vbvZnhd #acn
Zona Harrison
5 Sep 15 08:00:07
RT @DayTradersGroup: Highest traded stocks http://t.co/ME4Eub2PZw $SPY $AAPL $NFLX $QQQ $VXX $IWM $TSLA $FB $AMZN $BABA $TWTR $GOOGL $BAC $…
Ophir Gottlieb
5 Sep 15 07:53:15
$BAC vs. $WFC Head to Head http://t.co/fqGWIFL5vw http://t.co/h1LkQKZL5F
FinBuzz
5 Sep 15 07:52:54
Why access a ticker when you could acesss a group of tickers $BBRY $GPRO $BAC http://t.co/eyfJ4nQf29
Capital Market Labs
5 Sep 15 07:52:50
$BAC vs. $C Head to Head http://t.co/Gl5tkB2JAn http://t.co/iDpiHEhNcN
US Banking News
5 Sep 15 07:48:10
Bank of America Receives “Outperform” Rating from Oppenheimer $BAC http://t.co/7vj1K84QGX
FirstToMarkets
5 Sep 15 07:45:06
Bank of America Corp Reiterated Rating by CIBC Oppenheimer (Ranked 53rd) to Outperform $BAC #BAC http://t.co/LloPpI7JZs
Ticker Report
5 Sep 15 07:41:46
Bank of America Receives “Outperform” Rating from Oppenheimer $BAC http://t.co/yRRh20myb0
Dakota Financial
5 Sep 15 07:39:03
Bank of America Receives “Outperform” Rating from Oppenheimer $BAC http://t.co/7hP5UwNBIQ
US Consumer News
5 Sep 15 07:38:51
Bank of America's outperform rating reiterated at Oppenheimer. http://t.co/5OcVio57xc $BAC #BAC
MarketBeatCom
5 Sep 15 07:33:20
Bank of America's outperform rating reiterated at Oppenheimer. http://t.co/mAwmxtFBxZ $BAC #BAC
Mark J. Guillen
5 Sep 15 07:32:00
Baird Equity Research Upgraded Bank Of America Corp Stock $BAC - http://t.co/f10AI6KVg8
FinSentS SP500
5 Sep 15 07:08:14
$BAC:US An ATM worth switching banks for? #BANK OF AMERICA CORP http://t.co/utqYtwP95x #SP500
Mark J. Guillen
5 Sep 15 07:03:38
Bank of America & JP Morgan Chase How Will Banks Perform $BAC - http://t.co/XyF0o0ViPJ
ProTradersNews
5 Sep 15 06:58:04
$BAC: Financial Stock’s Buzzers – Bank of America (NYSE:BAC …: http://t.co/iQGMpg3WVe
Muathe
5 Sep 15 06:33:52
[VIDEO] Weekend US Market Analysis 09/05/2015 $BAC $AAPL $INTC $FB $ATVI $VXX $QQQ $MSFT $T $FCX $SUNE $C $XIV $F $T https://t.co/jktbhJQjgg
Trading Quotient
5 Sep 15 06:31:13
05 Sep 2015: Downtrend Stocks in Financial $ACE $AFL $AIG $AIZ $AMT $AVB $BAC $BBT $BEN $BLK http://t.co/3bi08LRKPF
Solo traders
5 Sep 15 06:12:49
$BAC - ISS Opposes Bank of America Proposal Allowing Board to Combine Chairman, CEO http://t.co/dgb8OvlImh
Solo traders
5 Sep 15 06:12:48
$BAC - ISS Opposes Bank of America Proposal Allowing Board to Combine Chairman, CEO http://t.co/q07QQ9BQ84
yahyatuts
5 Sep 15 06:12:46
$BAC - ISS Opposes Bank of America Proposal Allowing Board to Combine Chairman, CEO http://t.co/LB8IAc3hM1
yahyatuts
5 Sep 15 06:12:45
$BAC - ISS Opposes Bank of America Proposal Allowing Board to Combine Chairman, CEO http://t.co/328r6vc8bz
FinBuzz
5 Sep 15 06:00:03
Why access a ticker when you could acesss a group of tickers $BBRY $GPRO $BAC http://t.co/eyfJ4nQf29
Simon Taylor
5 Sep 15 05:47:20
RT @tradewithjoe: Accepting New Members 4 Limited Time http://t.co/xmN5ySZmt4 $SPY $QQQ $IWM $USO $XLF $BAC $AAPL $FB $TWTR $LNKD $BIDU $…
tradewithjoe
5 Sep 15 05:45:00
Accepting New Members 4 Limited Time http://t.co/xmN5ySZmt4 $SPY $QQQ $IWM $USO $XLF $BAC $AAPL $FB $TWTR $LNKD $BIDU $GLD $GDX $DUST $DIA
Raymond Enisuoh
5 Sep 15 05:44:07
$BAC See: https://t.co/XWj3Ci0XxU … … … … … … … … -NicolaHodgkinson-
The Stock Professor
5 Sep 15 05:28:02
Facebook, Google Dominate U.S. Smartphone App Field: [at Investor's Business Daily] - Fac... http://t.co/vrubwG0kTJ $FB $TWTR $LNKD $BAC
Solo traders
5 Sep 15 04:58:54
$BAC - ISS Opposes Bank of America Proposal Allowing Board to Combine Chairman, CEO http://t.co/bUaP2osaIL
yahyatuts
5 Sep 15 04:58:50
$BAC - ISS Opposes Bank of America Proposal Allowing Board to Combine Chairman, CEO http://t.co/yH0nMcajcV
Wayne Yang
5 Sep 15 04:44:24
Bank of America @bankofamerica Board Under Fire for Combining Chairman and Chief Jobs http://t.co/XdmWtEiNRS $BAC
Top Moving Stocks
5 Sep 15 04:28:49
Why Making Dramatic Moves: Bank of America Corporation $BAC Wells Farg
FinBuzz
5 Sep 15 04:19:09
Why access a ticker when you could acesss a group of tickers $BBRY $GPRO $BAC http://t.co/eyfJ4nQf29
Sleek Money
5 Sep 15 03:06:02
Traders Buy Bank of America on Weakness $BAC http://t.co/tyQ1X847Yr
FinBuzz
5 Sep 15 02:19:10
Why access a ticker when you could acesss a group of tickers $BBRY $GPRO $BAC http://t.co/eyfJ4nQf29
Alexia Z
5 Sep 15 00:59:52
RT @adamsamson: .@SheilaBair2013 says too much emphasis is put on the bank CEO, chair debate. Interesting take given the $BAC dispute http:…
Michael James
5 Sep 15 00:44:42
Our Penny Stock Alert On $GEQU Is Up 614.29% For Our Subscribers! Check Out Our New Pick: http://t.co/7IiluPoPtS $AAPL $BAC $CBIS
Michael Cook
5 Sep 15 00:44:06
Our Penny Stock Picks Gained Over 3,000% In The Past Year! New Pick Just Released Tonight: http://t.co/eJEU1FPC3X $AAPL $BAC $CBIS
Paul Henry
5 Sep 15 00:42:11
Over 600% Gains For Subscribers In 2 Months! Sign Up To Platinum To Get Our Picks Early: http://t.co/m7w5IRXEIs $AAPL $BAC $CBIS
FinBuzz
5 Sep 15 00:32:10
Why access a ticker when you could acesss a group of tickers $BBRY $GPRO $BAC http://t.co/eyfJ4nQf29
InvestWithConf
5 Sep 15 00:23:02
$BAC is rated BUY, 23.1% upside by Wall Street analysts based on average ratings/targets http://t.co/kHkjAgVEDP http://t.co/qiawb4MPit
The Stock Professor
5 Sep 15 00:01:12
Franklin Resources: Too Cheap to Ignore: [at http://t.co/AlSWvPtCSa] - Franklin Resources ... http://t.co/l8a5HJNFf1 $FB $TWTR $LNKD $BAC
FinSentS SP500
4 Sep 15 23:07:55
$BAC:US An ATM worth switching banks for? #BANK OF AMERICA CORP http://t.co/lRCVFOSiza #SP500
FinBuzz
4 Sep 15 23:02:55
Why access a ticker when you could acesss a group of tickers $BBRY $GPRO $BAC http://t.co/eyfJ4nQf29
KumarAlerts
4 Sep 15 23:02:14
RT @tradingview: $BAC - BAC - BREAKING THE BANK - https://t.co/VtaRd7WSoe
Paul MARCEL
4 Sep 15 22:11:33
Les 5 actions avec les volumes sur options les plus importants hier: $AAPL, $BAC, $NFLX, $FB et $BABA. Les Calls... http://t.co/o9pgDg0BdR
				
				
  +Follow November 26, 2013 9:56AM
Share:

Comments

 

blog comments powered by Disqus

 Today's Must Reads

Welcome to Equities.com's Small-Cap Throwdown


These Analysts Called Apple's (AAPL) Collapse, Here's What They're Saying Now

7 Dow Stocks Worth Owning and a Lot that Aren't

Sprint Turnaround Has Begun


Saving the

Small-Cap Market

 

Small-cap stocks offer investors many benefits, ranging from higher growth potential to overlooked value opportuni... in Equities.com's Hangs on LockerDome

About us

Equities.com is an advanced financial data portal and social network designed to connect self-directed investors with the world’s most innovative startup and small cap companies. Through our in-depth coverage of small cap markets, comprehensive research and stock valuation reports, state of the art issuer products, and world class events, Equities.com provides the social tools and insight that drive tomorrow’s investment relationships and opportunities.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.

Login or Register

LOG IN