Will Regional Banks Make a Comeback?

Brittney Barrett  |

The last quarter saw the major banks suffering through ongoing challenges. Just yesterday a ruling determined that Citigroup (C) would pay $285 million for deception as a result of its involvement in the mortgage crisis. Prior to that, Goldman Sachs reported its first quarter of losses since the depth of the recession and Bank of America only managed to stay above water on the basis of a major sale of Chinese holdings. The latter’s most recent decision to begin charging customers for debit cards had many American’s considering swapping their funds out into a regional bank, and many investors considering the possibility.

Are regional banks going to be popularized alongside the mistrust and share price hemorrhaging of big name financial institutions?

Well the most recent earnings appear to say otherwise. Regional banks may be preferable in terms of residual risks from the financial crisis, but their earnings indicate more people are hiding their money under their mattress than opening accounts at their local PNC or New York Community Bank Corp.

Below are two regional banks that look as though they could lose more before they recover.

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Comerica (CMA)- Comerica reported an increase in profits for the third quarter but investors were disappointed with the bank’s failure to meet expectations and sent shares down an additional 11 percent following the release. Comerica has been smart to avoid the real estate industry and focus on alternative investments but certain economic factors may hinder shares of the bank, which has already lost about 40 percent of its value this year.

Among the challenges facing Comerica’s long term bottom line is the Federal Reserve’s “Operation Twist,” which effectively lowers long-term interest rates and the profits for Comerica. The bank intends to help improve margins by reducing its expenses and developing new plans for improving revenue but it’s unclear what sort of methods the bank would use to gain the $100 million it’s projecting in profit gains for 2012.

M&T Bank (MTB)- Shares of M&T Bank have also been on a negative trajectory after falling short of analyst expectations. M&T has been underperforming many of its peers but the bank has somehow managed to hold onto more of its share value than some competing banks. This may not be a good thing. If M&T continues to fail to meet expectations, it has further to fall than some other regionals. It could also be difficult to maintain profitability at M&T with the massive $230 million is still owes in Federal bailout funds from the 2008 TARP program.

M&T also has heavy acquisition costs both from its most recent buy and the $151.5 million it owes on top of its own remaining Federal bailout debt from Provident Bancshares, which it acquired in May 2009.

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