Thursday, February 2, 2012

Banks start 2012 with a bang. Why?

Andrew Boord, whom I interview for this blog a couple of years ago (HERE), was quoted in this article.

The problem that investors have with the largest banks is that even if you have an MBA or Ph.D in economics, it's difficult to ascertain the true value of the complex assets on their balance sheets. Heck, some would argue you need an M.D. to diagnose what's ailing the likes of BofA and Goldman.

That's why some money managers think that smaller, regional banks are better investments if you believe the U.S. economy is really on the mend and that financial stocks should get a corresponding lift.

It's easier to understand banks that stick to the tried and true business of lending money and taking in deposits and don't have things like sovereign debt exposure to Italy and massive proprietary trading desks.

"There are a lot of clouds for bigger banks, Europe is still an issue and government regulations are voluminous to put it mildly," said Andrew Boord, senior research analyst with Fenimore Asset Management in Cobleskill, NY.

What's more, some of these smaller institutions have taken advantage of the turmoil in the financial markets and are growing by taking over failed banks.

The weekly Friday ritual of checking out what banks went under over on the FDIC web site didn't get as much attention in 2011 as it did in 2008. But many smaller lenders did fail last year, and that allowed banks with healthy balance sheets to gain more customers on the cheap.

"We like smaller banks that have been strong enough to take advantage of opportunities and acquired failed banks," Boord said.

He pointed to two Arkansas-based banks, Bank of the Ozarks (OZRK) and Home BancShares (HOMB), as perfect examples of smaller lenders that have done well the past few years thanks to this strategy.

Bank of the Ozarks has scooped up failed banks in Georgia while Home BancShares acquired several shuttered banks in the Florida panhandle region. Boord, whose firm owns both stocks, also likes SCBT (SCBT), a South Carolina bank that has bought failed banks in Georgia.


Related article: Small banks thrive below regulators' radar