Amid a sell-off of bank shares following Obama speech, regional banks show strength

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Regional banks spared financial sector sell-off

CINCINNATI — Comparing the stock performance of regional banks Thursday to big, national institutions might give the impression that the trading occurred on different days.

The difference were comments made by President Barack Obama, who proposed new restrictions on major banks that would limit how they could use the money of depositors.

That would not change much at regional banks, whose shares rose Thursday as the stock of major players Bank of America, Citigroup Inc. and JPMorgan Chase & Co. fell more than 4 percent.

Changes to banking rules may give a new advantage to regional banks, which have not been able to use profits from trading desks to supplement the retail side of banking, namely collecting deposits and issuing loans.

And on Thursday, regional banking companies Fifth Third Bancorp and KeyCorp reported narrowing fourth-quarter losses, improved interest margins and fewer loan delinquencies.

Shares of Fifth Third rose 71 cents, or 6.3 percent, to $12.02 and KeyCorp saw its shares rise 38 cents, or 5.5 percent, to $7.34.

Still, both banks acknowledge challenges ahead even as the economy stabilizes.

“Many of our commercial clients are very nervous about investing in new projects,” said Fifth Third CEO Kevin Kabat.

Fifth Third Bancorp in Cincinnati was stung during the housing crisis and while there has been a slow recovery in some markets, prices remain well off their highs, Kabat said.

“A 5 percent increase after double-digit decreases still leaves a lot of people under water,” Kabat said. “All told, a much better operating environment than we’ve seen in some time, but the economy is not yet firing at all cylinders.”

Fifth Third reported a per-share loss of 20 cents for the three months ending Dec. 31, for a net loss of $160 million. A year ago, the company had a $2.2 billion loss in the fourth quarter, or $3.78 per share.

Fifth Third reported improvement in both commercial and consumer loans and said it sees that continuing. The bank expects charge-offs in 2010 to be less than in 2009.

KeyCorp said it lost $265 million, or 30 cents per share, in the fourth quarter on revenue of $1.1 billion. A year ago, the Cleveland company lost $524 million in the fourth quarter.

CEO Henry Meyer III said KeyCorp has worked for two years to strengthen capital and reserves so that it can “emerge from this extraordinary period as a strong, competitive company” after seven straight quarterly losses.

“It was a positive quarter, and it appears that many of the regional banks — especially Fifth Third and Key — have turned the corner,” said Matt McCormick, banking analyst and portfolio manager for Bahl & Gaynor Investment Counsel in Cincinnati. “I think they will survive, but they still have significant hurdles ahead of them.”

Associated Press writers Thomas J. Sheeran in Cleveland and Dan Sewell in Cincinnati contributed to this report.

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