Transcripts

Ways Regional Banks Are Raising Capital

PAUL KANGAS: On Wall Street, financial stocks have been in the spotlight for their poor performance this year, and many regional banks have been hit especially hard. As Erika Miller reports, most analysts don't see a turnaround anytime soon for the regional players.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Troubles at big money center banks and brokerage firms have dominated headlines this year. But many smaller, regional banks are in even worse shape. The Standard & Poor's regional bank index has fallen nearly 40 percent since January 1. Though regional banks are scattered geographically, Morningstar analyst Jim Sinegal says they're facing a common problem.

JAMES SINEGAL, BANKING ANALYST, MORNINGSTAR: The fear is credit quality. It started out with the major banks that had exposure to sub- prime mortgages and now it's basically spread to all areas of credit, regional banks with exposure to home equity loans, home construction and even now commercial loans.

MILLER: Some regionals are raising capital by issuing more stock. Others are cutting dividend payouts. Most analysts expect an increasing number of regional banks will go bankrupt this year. Sandler O'Neill's Kevin Fitzsimmons predicts many others will merge.

KEVIN FITZSIMMONS, BANKING ANALYST, SANDLER O'NEILL: I think at some point, you are going to see that. We've had a real slowdown in M&A right now. And that's understandable because a lot of the buyers are looking to preserve their own capital and they're trying to get their arms around their own credit quality concerns.

MILLER: Analysts say there are a few regional banks that have not gotten caught in the market downdraft. New Jersey-based Hudson City Bancorp, for example, has seen its shares rise 14 percent this year because it specializes in jumbo loans to prime borrowers. But analysts warn most regional banks will continue to struggle.

FITZSIMMONS: At this point, it seems things are bad and they are getting worse. And I think when you look at a credit cycle, credit cycle historically tends to get measured in years, not necessarily in months. And so we're still potentially in the early innings of the credit cycle here.

MILLER: Although times are clearly tough for banks, analysts don't think it will be as bad as the late 1980s. Back then, over 1,600 Federally insured financial institutions failed as a result of the savings and loan crisis. Erika Miller, NIGHTLY BUSINESS REPORT, New York.