Nov 5 (Reuters) - Credit costs and provision for bad loans are expected to remain elevated throughout 2009 for mid-sized regional banks, as the credit cycle moves further into commercial lending, Banc of America Securities-Merrill Lynch Research said.
Analyst Kenneth Usdin said, “The elongation and deepening of the credit cycle and challenges facing core earnings power will continue to outweigh increasingly attractive valuations.”
Usdin said banks with larger builder/commercial exposure should be avoided and listed Regions Financial (RF.N), Synovus Financial (SNV.N), Marshall & Ilsley MI.N and Zions Bancorp (ZION.O) as his “least favorites,”rating them “underperform.”
Commercial lending and non-residential commercial real estate will see higher delinquencies and losses, said Usdin, who has a negative outlook for mid-sized regional bank stocks.
“Earning asset growth is stagnating, net interest margins are still declining, capital markets fees are negatively impacted by lower market levels, and changes in consumer behavior will weigh on service charges and card fees,” Usdin said. (Reporting by Sweta Singh in Bangalore; Editing by Himani Sarkar)