Traders See More Bank M&A's As REITS Hit Hard
There are two trends that traders see happening in banks:
1) most are expecting more M&A in banking;
2) a split between the "have nots" and the "haves": a split between banks with strong capital positions/less exposure to residential & commercial real estate/construction, and those with weaker capital positions and significant exposure to real estate.
The Street has been making this distinction for months, and it is now accelerating. For example, look at some of the smaller regional banks that have less exposure to construction/real estate than others, and how they have performed in the last year:
Hudson City up 29 percent
People's United up 10 percent
SVB Financial up 15 percent
PNC up 5 percent
Notice they are UP, despite the debacle in financials. Now look at some of the other names that have much larger exposure to real estate (also in the last year)
Washington Mutual down 93 percent
Wachovia down 75 percent
Synovus down 15 percent
Wells Fargo down 3 percent
What's up with REITs? Real estate investment trusts (REITs) that specialize in office properties are being hit hard today. Vornado, Brookfield and SL Green are all down about 10 percent; what's up? Two concerns: 1) Lehman may dump significant amounts of commercial real estate on the market, driving down asset prices, and 2) both Lehman and Merrill lease several million square feet of office space in Manhattan, where both Vornado and Brookfield have significant holdings.