SOURCE: Paragon Financial Limited
NEW YORK, NY--(Marketwire - Oct 26, 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 KeyCorp (NYSE: KEY) and Regions Financial Corporation (NYSE: RF).
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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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"We are hearing from our clients that they are indeed cautious; they are concerned," said KeyCorp CEO Beth Mooney in reference to business loans. "Borrowing is a choice for many of them. So whether actually your pipeline converts to actual borrowing is a function of whether the companies feel confident enough, or have a compelling business reason to proceed."
Regions Financial reported third quarter net income available to common shareholders of $301 million, compared to $284 million in the second quarter. Regions net interest margin decline by eight basis points to 3.08 percent when compared to the previous quarter. Analysts at Credit Suisse lowered its price target for the company from $8.50 to $8.00.
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