It’s not just worries about high interest rates and commercial real estate that are plaguing regional banks in the U.S., according to DataTrek Research.
“U.S. regional banks have been a rough corner of the market for many years,” Nicholas Colas, co-founder of DataTrek Research said in a note emailed Tuesday. “With dividend yields well below 10-year Treasuries, regionals look very risky here.”
Regional banks in the U.S. have “barely grown their aggregate dividend payouts” since 2006-2007, he said, citing the SPDR S&P Regional Banking ETF. They have suffered from “lackluster long-term fundamentals long before the last 12 month’s concerns” over interest rates and the area’s exposure to the commercial real estate market, according to the DataTrek note.
The SPDR S&P Regional Banking ETF’s annual dividend of $1.44 per share in 2006-2007 shrank to $1.29 in 2019, the note shows. While the payout then rose to $1.57 a share in 2023, that’s only 9% above levels seen in 2006 and 2007, said Colas.
“Their stocks are, unsurprisingly, flat versus then,” he said. “This group’s latest troubles,” wrote Colas, “hit a sector with a long track record of paltry shareholder value creation.”
Shares of the SPDR S&P Regional Banking ETF
KRE
were down 1.3% on Tuesday afternoon, bringing their year-to-date slide to around 10%, FactSet data show, at last check.
Meanwhile, shares of New York Community Bancorp Inc.
NYCB,
which was among the ETF’s top holdings as of Feb. 5, were plunging Tuesday, deepening their recent tumble that had been sparked by worries over its commercial-real-estate exposure. The bank last week reported a surprise loss amid troubles in the sector.
Also see: Commercial real estate a top threat to financial system in 2024, U.S. regulators say
“We recommend caution with the group just now,” Colas said of regional banks. “They can certainly get a lot cheaper.”
U.S. stocks were broadly trading mixed on Tuesday afternoon, with the Dow Jones Industrial Average
DJIA
rising 0.3% while the S&P 500
SPX
slipped less than 0.1% and the Nasdaq Composite
COMP
shed 0.3%, FactSet data show, at last check. The S&P 500’s financial sector was trading flat on Tuesday afternoon, for a gain of 2.8% so far this year.
In the bond market, the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was trading down seven basis points at around 4.09%, according to FactSet data, at last check.