NEW YORK, NY--(Marketwire - Oct 29, 2012) - Regional banks have lagged behind their larger counterparts in recent weeks as most have reported slowing demand for business loans. The SPDR KBW Regional Banking ETF (KRE) has fallen 4 percent in the last month, while the broader Financial Select Sector SPDR ETF (XLF) has remained flat. The Paragon Report examines investing opportunities in the Regional Banking Industry and provides equity research on Hudson City Bancorp, Inc. (NASDAQ: HCBK) and SunTrust Banks, Inc. (NYSE: STI).
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Analysts at Credit Suisse earlier this week stated that slowing demand for commercial and industrial loans are expected to reduce the outlook for regional banks over the next year. Additionally, efforts by the Federal Reserve to lower interest rates to help boost the economy have had a negative impact on banks' net interest margin, which are the profits they make from lending and investing. According to Keefe, Bruyette & Woods of all the banks tracked by the firm, 79 percent saw a decline in their net interest rate margin.
"Growing earnings will become more difficult over time unless interest rates move up," said Fred Cannon of Keefe, Bruyette & Woods.
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"Our net interest margin decreased 10 basis points to 2.02% in the third quarter of 2012 from the linked quarter as yields on our mortgage related assets declined due to record low market interest rates," Hudson Chief Executive Ronald E. Hermance Jr. said. "The decision by the Federal Reserve to continue to purchase mortgage-backed securities will likely keep rates low for the foreseeable future."
As of June 30, 2012, SunTrust had total assets of $178.3 billion and total deposits of $128.4 billion. Excluding net gains from their shares in The Coca-Cola Company total revenues in the third quarter declined 13.3 percent to $1.90 billion. The bank's net interest margin also declined 11 basis points to 3.38 percent from third quarter 2011.
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