SOURCE: Rothman Research

Rothman Research

March 19, 2010 08:52 ET

Fragile Recovery in the Banking Sector

JOHANNESBURG, SOUTH AFRICA--(Marketwire - March 19, 2010) -   www.rothmanresearch.com - The state of affairs in the banking sector has improved after the government took some serious measures. These measures also brought some good level of stabilization in the economy. However, since this recovery is based on a fragile foundation, any small decline can rip off whatever recovery the US banks have shown till now. This is possible even though most of the banks showed higher than expected earnings in Q1 and Q2 of 2009. The downward trend was also reversed in the Swiss banks along with their US counterparts. The earnings per share of both the nations improved.

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Even though the government is supporting relief packages for senior bank debt, the share prices have not proceeded in accordance. They have continued to decline significantly. The reason for the on-going decline is the pressure that the government funding is putting on these banks. And so, evaluation is being done by organizations like CVB Financial Corp. (NASDAQ: CVBF) and Zions Bancorp. (NASDAQ: ZION), so that any kind of irregularity is caught as soon as it happens. Direct & free downloadable reports of the intensive research are available by signing up now at http://www.rothmanresearch.com/article/cvbf/23366/Mar-19-2010.html  or http://www.rothmanresearch.com/article/zion/23367/Mar-19-2010.html

Notably, the situation in the credit markets is not very different. They still rely heavily on government aid. Capital is still a problem since many in the sector do not readily have access to it. Whilst the high-rated issuers have absolute right to use Central Bank's facilities, the ones which have low rating are still facing credit mayhem.

What is more, the structured credit products markets with the exception of agency-guaranteed issues continue to be fundamentally frozen.

CVB Financial Corp. has shown a good performance in 2009. Many of the targets have been achieved. And the indication of the same is the fact that the firm has raise $132.5 million capital besides being able to pay back all its TARP funds. San Joaquin Bank, the acquired banking facility has shown a good growth in terms of organic development. Besides this, the total allocation made for the loan losses was increased to $55 million.

On the financial front, the bank was a good increase in its total deposits and customer repos. The same increased to $4.92 billion for the period ending December 31, 2009. This was $1.06 billion or 27.36 per cent higher than the same period last year. The figure for the period ending December 31, 2008 was $3.87 billion.

The company said that this growth was possible because of the deposit initiatives taken by the bank and also because of the success of the Specialty Banking Group and Commercial Banking Centers. The profit margins of the bank have also increase. This has been possible because of the increase in low-cost borrowings by the customers. And since CVBF has been able to absorb non-performing loans, the growth has been strong and sustainable. Register now at http://www.rothmanresearch.com/index.php?id=6&name=Register to view the full report on this company.

After showing bad performance for many quarters, Zions Bancorp has finally managed to show some stabilization in credit quality metrics. But the situation was not very good since the number of total non-performing assets (NPAs) remained flat.

The construction and land development loans also remained very marginal during the quarter. This happened since the improvements in the construction portfolio were made null and void by the high non-performing commercial loans.

Zions also expects to have losses and gradual improvement in the coming period because of the high amount of non-performing loans. The figure is as high as 6 per cent.

The net charge-offs were 2.9 per cent of loans as against 3.7 per cent in June and 3.3 per cent in September. The construction net charge-offs were responsible for this fall. The same trend was seen in non-accrual loans.

The bank expects to be able to absorb the hits but the effect would be seen in profit figures of 2010. Sign up today at http://www.rothmanresearch.com/index.php?id=6&name=Register to access the full report on this company.

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