Financial ETF’s Could Suffer As Big Banks Look To Boost Cash Position

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December 1, 2009 5:59pm ETF BASIC NEWS NYSE:KBE

bank“Big banks are scaling back their lending activities and boosting cash so far in the fourth quarter to cover lingering credit losses


, said J.P. Morgan, which also trimmed its earnings estimates for some large-cap banks on Tuesday,” John Spence Reports From The WSJ.

“Key changes seen thus far in the fourth quarter for large banks are the slowdown in growth in securities and the large 28% quarter-over-quarter increase in cash, while loans continue to decline at a little faster rate led mainly by construction and industrial loans and also to some extent residential mortgages,” J.P. Morgan analysts said in a research note Tuesday. “We expect this shift will hurt net interest income into 2010,” they added.

“The analysts cut their estimates for several banks: Bank of America Corp. (BAC), Regions Financial Corp. (RF), Wells Fargo & Co. (WFC), SunTrust Banks Inc. (STI) and Fifth Third Bancorp (FITB). J.P. Morgan said it sees “mixed trends” in credit quality. On the positive side, credit-card early delinquencies are stabilizing and net charge-offs are down for securitized loans, but one headwind is that “stealth” credit costs such as foreclosure-related costs will continue to grow,” Spence Reports.

“Large banks that received federal aid under the financial bailout are under to pressure to lend more, but many banks are sitting on cash to cover expected losses during the economic slowdown. Commercial real estate is widely expected to be the next shoe to drop for lenders after the residential mortgage crisis. Goldman Sachs analysts on Monday estimated banks have recognized about $1.6 trillion of credit losses, putting them about two-thirds of the way through the current cycle. SPDR KBW Bank ETF (KBE), a volatile portfolio of bank stocks, is roughly flat for the year-to-date period, compared with a gain of more than 20% for the S&P 500 Index (SPX),” Spence Reports.

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Here Is A Quick Snapshot Of The SPDR KBW Bank ETF (KBE):

The investment (KBE) seeks to replicate the performance of the KBW Bank index. The fund uses a passive management strategy designed to track the total return performance of the Bank index. It is nondiversified.

TOP 10 HOLDINGS ( 58.77% OF TOTAL ASSETS)  
 
Company Symbol % Assets
BK OF AMERICA CP (BAC) 8.98
BANK OF NY MELLON CP (BK) 4.3
BB&T CP (BBT) 4.37
CITIGROUP INC (C) 8.19
JP MORGAN CHASE CO (JPM) 7.25
M&T BANK CORP (MTB) 4.04
REGIONS FINANCIAL CP (RF) 4.5
SUNTRUST BANKS (STI) 4.37
US BANCORP (USB) 6.22
WELLS FARGO & CO NEW (WFC) 6.55

Chart for SPDR KBW Bank (KBE)

 

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