Investors are beside themselves over the best way to play banks. Do they still have room to run or is it time to game banks from the short side?
Most of the larger banks have already made sizable gains since March.
Just take a look at the SPDR KBW Bank Index made up of Bank of America, JP Morgan, Wells Fargo and other banking goliaths. It’s up a whopping 48% over the past three months. Of course that begs the question, can the big boys continue to climb?
Then there are the regional banks. The SPDR KBW Regional Bank Index , made up of First Horizon, Associated Banc-Corp and other regional banks is only 7% higher over the same period.
Investors are far more cautious here, because of regional banks' exposure to commercial real estate.
Why is commercial real estate is particularly problematic for regional banks – as opposed to the big banks?
According to the LA Times, it’s because “smaller banks stepped up lending to local developers and businesses as a way to stay afloat after the national institutions grabbed big-ticket consumer businesses such as home loans, credit cards and checking accounts.”
Of course you could look at other financials such as the publicly traded private equity firms or the insurance guys.
Isurance firms that didn’t take TARP money a few weeks back seemed to make a move higher. But insurance is tied to the bond market. And the Wall Street Journal says, “if bond markets collapse - where insurers invest the bulk of their premium income - insurance firms may face a liquidity crunch and have more difficulty raising funds.”