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There have been few better ways to lose money in the last 18 months than investing in U.S. banks. Even if you avoided total blowups, regulator-seized banks like Washington Mutual Inc. or IndyMac Bancorp, the zombie-like industry survivors often lost 50 to 75 per cent or more from their pre-crisis share prices.
The banks' problems are far from over, as many wrestle with the after-effects of the U.S. recession, particularly the softness in commercial real estate. However, American bank stocks are beginning to recover, with some rewarding their shareowners with sharp gains so far in 2010.
To go beyond the biggest American names, let's turn to an index of mid-size regional banks put together by investment bank Keefe, Bruyette & Woods. The 24 biggest American Banks are in its KBW Bank Index, but the next 50 are in the KBW Regional Bank Index.
Siddharth Jain, the investment bank's senior vice-president for financial institutions research, said the members' float-adjusted market capitalizations range from $7-billion (U.S.) to $400-million.
Here are the index's top three performers this year, with year-to-date returns through Friday:
PrivateBancorp Inc. up 43.3 per cent YTD.
Chicago, Ill.-based PrivateBancorp has eschewed the retail-based banking model of most American banks. Instead, it has focused on lending to businesses and their owners, with a range of wealth-management and mortgage services thrown in. With just 23 offices scattered across 10 mid-western and southeastern cities, its branch network is small compared with most banks that serve a wide region.
The focus on business lending had an expected result on its 2009 results: PrivateBancorp posted a hefty third-quarter loss, with a significant provision for future bad loans and a warning that it saw credit quality problems continuing for several quarters. That news cut its stock price in half. That also made the shares ripe for a turnaround, which began in earnest in late January when fourth-quarter results came in better than expected, and analyst upgrades, including one from BMO Nesbitt Burns' Peter Winter, followed. He called PrivateBancorp one of the "turnaround names" that are "the stocks to own this year." At $12.85 at Friday's close, it's still off its 52-week high of $29.11.
Whitney Holding Corp. up 36.2 per cent YTD.
There's a class of U.S. banks that got battered well before the capital crunch of 2008: those lending in Louisiana and the Gulf Coast in 2005 during Hurricane Katrina. Whitney Holding, owner of Whitney National Bank, recovered quickly from its post-Katrina dip; the storm winds of Florida real estate, however, have been more of a problem. The New Orleans-based bank operates more than 150 branches in its home state, plus Alabama, Mississippi, Texas and Florida. Its presence in Tampa has caused the biggest headaches: Just 15 per cent of the bank's loans are in the Sunshine State, but 59 per cent of its non-performing loans are there.
Whiney Holding saw its shares run up in advance of its fourth-quarter earnings report, where it confounded analysts with a small net income, before preferred stock dividends, when analysts had expected a 30-cent-per-share loss. Risks remain; Whitney Holding still has a sizable proportion of construction loans on its books. At $12.41 Friday, it remains well below its post-Katrina peaks of more than $32 and has room before it retakes its 52-week high of $15.33.
Susquehanna Bancshares Inc. up 30.9 per cent YTD.
Named after a major East Coast river that snakes through its home state of Pennsylvania, Susquehanna Bancshares saw its stock beaten down to lows in 2009 thanks to a particularly bad first half that required $85-million in loan-loss provisions, wiping out any hopes of profit. While the stock was in the $5 range in mid-December, TheStreet.com picked it as one of "five (bank stock) plays for 2010" because it was trading for less than tangible book value and had a positive return on assets for the first three quarters of 2009.
The bank, which operates 220 offices in Pennsylvania, Maryland, New Jersey and West Virginia, closed Friday at $7.71, below its 52-week high of $10.92.