Regional bank stocks have bucked the bank-stock trend this year, and not in a good sense. Every Keefe, Bruyette & Woods (KBW) financial services index is generating positive returns year-to-date, except for two: the KBW Regional Banking Index and KBW Mortgage Finance Index.
The regional banking sector has been the real dog, down more than 6 percent this year through Oct. 3, but analysts expect the regional banking stocks to rebound, arguing that the recent regional bank-stock retrenchment has made them an even better target for investors.
The reasons are twofold. Smaller, regional banks are fighting for a bigger piece of a shrinking universe. The strongest banks will thrive and snap up weaker ones, analysts argue, fueling higher profits and dividends.
Second, while large U.S. banks make up 80 percent of the market, they are hampered by post-financial-crisis regulatory issues, making them less nimble when it comes to acquisitions that could add value.