Gradually Rising Interest Rates Will Allow Banks to Improve Earning Power Without the Shock of uickly accelerating higher rates impact their securities portfolios

Wall Street Transcript

67 WALL STREET, New York - March 5, 2013 - The Wall Street Transcript has just published its Pacific and Southwest Banks Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Heightened M&A Activity - Regulatory Obstacles and Fee Income Replacement - Interest Rates and Loan-Growth Strategies - Pockets of Growth in Western Banking - Regulatory Outlook Gains Clarity

Companies include: SVB Financial Group (SIVB), Flagstar Bancorp Inc. (FBC), Western Alliance Bancorporatio (WAL), Sterling Financial Corp. (STSA), Hilltop Holdings Inc. (HTH), Texas Capital BancShares Inc. (TCBI), East West Bancorp Inc. (EWBC), City National Corp. (CYN), Cullen/Frost Bankers, Inc. (CFR), Comerica Incorporated (CMA) and many more.

In the following excerpt from the Pacific and Southwest Banks Report, an expert analyst discusses the outlook for the sector for investors:

TWST: And are there any names you are cautious about?

Mr. Rabatin: We're going to change here thematically at some point. You've noticed the 10-year has moved off its floor and is now hovering around 2%. I think where I have been cautious is the names that have a higher-touch model, that have higher core funding, but their profitability is actually either peer or subpeer because their margins have continued to compress and their platforms, while desirable in an up-rate environment, have generally resulted in underperformance.

Two of the highest-quality names on my list I have actually been cautious toward, but I've warmed up to them the past quarter, especially after the fourth-quarter earnings, just given the prospects for the economy to improve and maybe more visibility that rates won't stay low forever. Those two names would be City National (CYN) and Cullen/Frost (CFR); again, really strong franchises. The valuations to some degree reflect that, but if you're thinking about higher rates and a better economy, those two names, as well as Comerica (CMA), would be appropriate bets to make in the banking space.

TWST: Beyond what we've already talked about, did anything stick out for you from the most recent quarterly earnings reports?

Mr. Rabatin: I think what the fourth quarter showed us is there are always challenges in the banking space, and the companies can and frequently do manage to get past those challenges and still have solid earnings despite what many would complain in the banking space is not very beneficial to earnings growth, which is low interest rates, slow growth and limited opportunity to really improve profitability going forward. I think what will become more evident over the next few quarters is it is going to be more challenging on the margin side than maybe people realized...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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