The next step in the credit crisis is supposed to be that smaller regional banks overloaded with deteriorating real-estate and construction loans will start going belly up. We are happy to report that, so far, that doesn’t seem to be happening.
In fact, most small lenders had a decent quarter. James Brumley at Investopedia put together a sample of smaller banks that reported earnings in Q2. Of the 20 banks in the sample, 19 made their numbers and 11 beat expectations, while 9 missed. Not great, but also not the rout some analysts were expecting.
Alas, this doesn’t mean that we’re free and clear. Most of the regional banks have steered clear of subprime. Most, therefore, haven’t had to take any big-time write-downs yet. But, all the big banks have given pretty pessimistic colour on the direction of the broader credit environment, and more specifically, prime mortgages (Where the regionals are far more exposed). Jamie Dimon said last week that he expects losses on prime to triple. If this comes to pass, then the regionals will definitely feel the pain.
Regional Banks, Some Of Which Didn’t Blow Q2 (Source: Investopedia)