Financials You Can (and Can't) Bank On
The relentless climb of oil prices has stolen away the headlines, but the credit crunch is still a front-burner issue for American financial companies and their stocks. JPMorgan ChaseCEO Jamie Dimon has admitted that his bank's purchase of Bear Stearns is risky and, at this point, far from complete.
David Konrad, head of large-cap bank research for Keefe, Bruyette & Woods, says regional banks appear to have lost their supposed immunity from the problems plaguing larger banks.
"There's a lot of exposure to construction lending that we're very concerned about, as well as home equity," he told CNBC.
Jeffery Harte also sees tough times ahead for financial stocks, but he sees the proverbial light at the end of the proverbial tunnel.
"I'm not expecting bread lines any time soon, but there's still housing problems to work through," the managing director in equity research for Sandler O'Neill said. But Harte quickly adds that investors must have some stocks in their portfolios.
"The way to look here is to go to the better management teams, of which I think JPMorganhas one, and banks that have stronger capital positions to not only weather the storm, but actually gain some market share, and come out of it a stronger player," Harte said.
He's less enthusiastic about other large banks such as Citigroup.
Konrad's firm recently upgraded National Cityon valuation, thanks to an infusion of private capital, but he's still cautious about it.
But his opinion of Midwestern regional Marshall & Ilsley
has fallen quite a bit.
"In 2004, they made a lot of acquisitions to support their processing company, which we felt was dilutive," he recalled. "Since that point they pushed for growth on the loan side to keep EPS growth up."
Citigroup and JPMorgan Chase are investment banking clients of Harte's firm, which has managed or co-managed a public offering of Citigroup and JPMorgan Chase securities.
Konrad's firm makes a market in shares of Marshall & Ilsley and National City, and his firm has been compensated by them for investment banking services.