Trader Talk

Regionals Falling Harder Than Big Banks Now

Bob Pisani is off; this post was written by CNBC producer Robert Hum.

Stocks are losing steam this afternoon, with the Dow posting a triple-digit decline for its worst showing so far in the New Year. Dragging down the markets today are the financials, which is the lagging sector on the S&P 500.

Weighing on that sector today: still little evidence of improvement in bank credit losses following JPMorgan’s report this morning.

As the first big bank to report this earnings season, JPMorgan revealed its mortgage loss reserves surged $653 million from one year ago to $4.2 billion last quarter, while commercial banking loan loss reserves jumped from $190 million to $494 million. Furthermore, CEO Jamie Dimon cautioned that “consumer-credit costs remain high.”

Pushing the financial sector lower is a number of the regional banks, with names like Synovus Financial , KeyCorp , Fifth Third , Huntington Bancshares , Comerica , Regions Financial , and Marshall & Ilsley all falling 3-6 percent.

These declines contrast with the more modest 2-percent declines some of the bigger banks, like JPMorgan, Citigroup , and Bank of America , are seeing today.

Why the greater weakness in some of the regional banks? Worries that the ongoing credit concerns, which JPMorgan revealed this morning, may be felt hard by these banks too.

However, unlike JPMorgan, whose strong investment banking operations helped offset weakness in its consumer and commercial banking divisions, the smaller regional banks generally don’t have the scope/breadth that the big banks do.

Most regional banks predominantly have a greater focus on consumer lending/banking, and they typically lack significant investment banking operations. As a result, unlike JPMorgan, Bank of America, and Citigroup, regional banks can’t rely on profits from such divisions to help support the reserves put aside for credit card or real estate loan losses — a challenge particularly if a turnaround in credit losses has been largely absent.

Traders will be on the lookout for any similar comments from these regional banks when they begin reporting their earnings over the next 2-3 weeks.

Keep in mind, though, that the regional names have had a bigger run-up so far this year, far outperforming bigger banks this year.

Regional Banks YTD

Marshall & Ilsley up 28 percent

Synovus Financial up 27 percent

Zions Bancshares up 27 percent

KeyCorp up 21 percent

Regions Financial up 21 percent

Big Banks YTD

Bank of America up 8 percent

JPMorgan Chase up 5 percent

Citigroup up 4 percent




Questions?  Comments?