Big Banks vs Regionals: The Better Investment Now
Large-cap financial stocks generally slipped across the board Monday as Congress continues to weigh industry reforms.
Are regional banks a better investment now? David Katz, chief investment officer at Matrix Asset Advisors, and Craig Siegenthaler, analyst at Credit Suisse, offered their insights and favorite stocks now.
"The regional banks avoid many of the big regulatory issues that impact large-cap banks," said Siegenthaler. "The first key issue is the systemic risk regulator and the second is the consumer financial protection agency."
He noted that the regionals are "overweight C&I* loans, especially small and middle market. These areas actually do very well."
Craig summed up: "If [regulatory reform] passes, it's definitely a net positive for the regional banks."
"We think the other headwinds that the regionals face outweigh the regulatory benefit," he said. Among those headwinds: outstanding TARP repayment obligations and a "good deal" of commercial real estate exposure, "which is a real concern to us."
The big banks, on the other hand, already "took their hits" in late 2008 into 2009, Katz said. "Their negative loan portfolios have peaked in terms of the negative trends."
"They have lower risk and good reward potential."
Bank of America
Bank of New York Mellon
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Neither Siegenthaler nor his firm own shares in any of the stocks he named. Disclosure information was not available for Katz or his firm.