KeyCorp dropped 12% Wednesday after underestimating its exposure to bad loans. Has the subprime slime spread all the way to the neighborhood bank?
I think so, replies Karen Finerman. The regional banks were priced out of the single family mortgage business, so they got into construction lending, which was fine for quite a while. But now it’s not. And I don’t think we’ve seen the worst of it yet. However I think it’s too early to short any of the banks with considerable exposure to construction loans, she adds.
I like US Bancorp , says Guy Adami. When things clear up I expect this stock to go significantly higher.
What’s the bottom line?
If you’re looking for ways to evaluate banks then look at the ratio of the bank’s portfolio allocated to construction spending.
Regional Bank Construction Loans
as % of Total Loans
Zions Bancorporation (ZION) 21%
Marshall & Ilsley (MI) 14%
KeyCorp (KEY) 11%
Comerica (CMA) 9%
PNC Financial (PNC) 9%
National City (NCC) 8%
Fifth Third Bancorp (FITB) 7%
U.S. Bancorp (USB) 6%
Huntington Bancshares (HBAN) 5%
Wells Fargo (WFC) 5%
SOURCE: Source: SNL Data and Sandler O'Neill