Citigroup and FDIC save Wachovia

Continuing consolidation leaves four giant banks: Bank of America, bac JPMorgan Chase, jpm Citigroup and Wells Fargo. wfc Going forward, they will press their advantage with new products and services, says Jim Eckenrode, an executive at TowerGroup, a research and advisory services firm for the financial services industry.

Donn Vickrey, chief analyst at Gradient Analytics, a stock research firm in Scottsdale, Ariz., says that as the country is left with few large banks, consumers can expect lower yields on savings and higher fees.

Banks will likely offer expanded services to big customers such as managers of large assets. "For the average consumer, it's going to be a bad deal," Vickrey says.

Consolidation could create opportunity for small and midsize banks, which focus on community and small-business banking, says Jay Sidhu, former CEO of Sovereign Bancorp, which runs Sidhu Special Purpose Capital out of Reading, Pa.

Sidhu says smaller banks are now poised to prosper, and he intends to invest at least $250 million in them in upcoming months. "Capital and superior management will be the keys for survival and growth in this environment," he says.

Regional bank stocks slammed

Whatever their prospects, regional bank stocks sank in the broad market's Monday slide.

Sovereign Bancorp sov tumbled 72% to $2.33. Fifth Third Bancorp fitb sank 44% to $9.11; FirstFed Financial fed dropped 25% to $7.50; and KeyCorp slumped 33% to $9.80. The Financial Select Sector SPDR (ticker: XLF), a fund that holds 85 large-company financial stocks, dropped 13%.

There were 117 banks and thrifts in trouble during the second quarter, the highest level since 2003, the FDIC says, but that number could climb. "There are a number of regional banks which may need help, either because of the weakening mortgage market or simply because of the weakening economy," Michael Sheldon, chief market strategist of RDM Financial Group, told the Associated Press.

This year, 13 banks have failed. Aside from Washington Mutual, two others failed this month: Ameribank and Silver State Bank. Only three banks failed in 2007, and none failed in 2005 and 2006, the FDIC says.

Contributing: Paul Davidson

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