Slow Improvement At Zions, M&I Shows Strain On Regional Banks
21 July 2010 - 3:47AM
Dow Jones News
Loan books at regional banks are getting better. But not fast
enough.
That is the message investors sent Tuesday after seeing
second-quarter earnings from two regional lenders, Zions Bancorp.
(ZION) and Marshall & Ilsley Corp. (MI). Both banks reported
losses and disclosed their books of risky commercial real-estate
loans improved only slightly over this year's first quarter.
Zions reported a loss of $135 million after the market closed
Monday. The Salt Lake City-based lender's $1.96 billion in
nonperforming loans--or loans at high risk of becoming
uncollectable--fell modestly over the first quarter, but still
remain higher than three quarters ago. The bank's core revenue also
shrunk as total loans fell for the fourth straight quarter.
M&I, based in Milwaukee, reported a net loss of $174 million
and said its troubled loans continued to improved--a key issue for
a bank that made big bets on construction loans and has now
reported a loss in eight of the nine last quarters.
Investors, though, were expecting more hopeful signs from
M&I's loan books. Like nearly all other large U.S. banks,
M&I also said its total outstanding loans--a source of current
and future revenues--have fallen again, down 14% in the last
year.
Stock in Zions fell 9.2% to $19.46 in midday trading. Shares in
M&I also fell 9.2%, to $7.00.
Both stocks have fared well this year, up 52% and 28%,
respectively, since Jan. 1--and the current slide of both stocks
likewise illustrates investors' growing unease with the condition
of regional banks' businesses, and loan books.
As the U.S. economy reveals an increasingly stunted recovery,
regional banks are being squeezed. Their loan troubles are easing
very slowly even as they face a lack of new sources of businesses,
like companies that want to borrow money or expand operations.
Emerging results from regional banks also suggest the midsize
lenders could suffer for quarters to come under a slow drip of
losses from commercial loans, especially commercial real
estate.
The results from Zions and M&I weighed on other regional
shares Tuesday, including stocks in banks like Regions Financial
Corp. (RF), SunTrust Banks Inc. (STI) and Fifth Third Bancorp.
(FITB). The KBW Regional Banking Index was down 1.7% to $46.34.
Executives at both Zions and M&I emphasized that their
levels of nonperforming loans are falling.
"We are encouraged with the decline in nonperforming
lending-related assets," said Harris H. Simmons, Zions' chairman
and chief executive officer, in a statement. "Notably, more than
80% of the improvement...occurred in construction and term
commercial real estate."
But where Zions saw improvement, investors see red flags. The
Utah bank has $2.5 billion in nonperforming assets, up from $2.1
billion a year ago.
Wisconsin-based M&I's $2.2 billion in nonperforming loans
fell for the fourth straight quarter, and have fallen a total of 7%
since the first quarter of 2009.
As the financial crisis raged two years ago, investors widely
assumed that regional lenders would take huge lump-sum losses from
belly-up loans, especially those tied to housing developments and
other construction project. Since then, regional banks have shown
an ability to stretch those likely losses across many quarters--in
part by restructuring loans, and in part because commercial
property markets aren't suffering from the heavy oversupply of
for-sale properties that bankers experienced during the property
crisis of the 1990s.
-By Marshall Eckblad, Dow Jones Newswires; 212-416-2156;
marshall.eckblad@dowjones.com
Marshall & Ilsley (NYSE:MI)
Historical Stock Chart
From Jul 2024 to Aug 2024
Marshall & Ilsley (NYSE:MI)
Historical Stock Chart
From Aug 2023 to Aug 2024