Regional Banking ETFs Are Due For A Major Pullback

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December 30, 2009 2:45pm ETF BASIC NEWS NYSE:KBE

bank“Regional banks have had an impressive run since mid-November, but there is a case to be made that the regionals’ outperformance of megabanks is due for a pullback. The KBW Regional Bank ETF


(KRE) is up 12.9% since the Nov. 12 market close, while the KBW Bank ETF (KBE), in which Citigroup (C) Wells Fargo (WFC), JPMorgan Chase (JPM) Bank of America (BAC) and U.S. Bancorp (USB) together account for more than 40% of overall holdings, is down by 0.1% over the same time period,” Dan Freed Reports From The Street.

“The reason for this outperformance seems clear. Many of the largest holdings in the regional ETF, including East West Bancorp (EWBC) Hancock Holding Company (HBHC) and MB Financial (MBFI) have seen their stocks pop after they bought failed banks from the Federal Deposit Insurance Corp. Other regional banks have seen their shares rise just on the expectation they will do similar deals,” Freed Reports.

“However, as strategists at Keefe Bruyette & Woods and Sandler O’Neill have pointed out, regional banks haven’t been forced to raise nearly as much capital as the 19 largest banks that underwent government stress tests this year. They will need to raise many billions more in capital, the strategists argue, and they aren’t likely to find it nearly as easy as the big guys did,” Freed Reports.

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The investment (KRE) seeks to replicate the total return performance, before expenses, of the KBW Regional Banking index. The fund uses a passive management strategy designed to track the total return performance of the KBW Regional Banking index. The index is a float adjusted modified-market capitalization weighted index of geographically diverse companies representing mortgage banks, loan processors, marketing and service institutions listed on U.S. stock markets. The fund is nondiversified.

TOP 10 HOLDINGS (KRE) ( 27.37% OF TOTAL ASSETS)  
 
Company Symbol % Assets
BANK OF HAWAII CP (BOH) 2.78
CVB Financial Corporation (CVBF) 2.83
East West Bancorp, Inc. (EWBC) 2.69
F N B CP (FNB) 2.72
FirstMerit Corporation (FMER) 2.58
Fulton Financial Corporation (FULT) 2.79
Hancock Holding Company (HBHC) 3
MB Financial Inc. (MBFI) 2.58
Signature Bank (SBNY) 2.65
SVB Financial Group (SIVB) 2.75

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 (KBE) ( 60.12% OF TOTAL ASSETS)  
 
Company Symbol % Assets
BK OF AMERICA CP (BAC) 8.65
BANK OF NY MELLON CP (BK) 4.42
BB&T CP (BBT) 4.28
CAPITAL ONE FINANCIA (COF) 4.08
CITIGROUP INC (C) 7.74
JP MORGAN CHASE CO (JPM) 7.72
M&T BANK CORP (MTB) 4.56
SUNTRUST BANKS (STI) 4.14
US BANCORP (USB) 7.38
WELLS FARGO & CO NEW (WFC) 7.15

 

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