Western Banks Performing Well Despite Low Interest Rate Environment

Wall Street Transcript

67 WALL STREET, New York - March 7, 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: East West Bancorp Inc. (EWBC), City National Corp. (CYN), CapitalSource Inc. (CSE), SVB Financial Group (SIVB), Bank of Hawaii Corporation (BOH) 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: In general, how would you say the Western banks are performing today?

Mr. Deer: I would say that, given the environment, they are performing very well. It's certainly a tough operating environment for the banks given the very low interest rates, and it has been a pretty sluggish recovery with the economy, but given that backdrop I think the banks are doing very well. They are being very mindful of their operating expenses and they are doing what they can to control their funding costs to help minimize margin pressures, so profitability has held in reasonably well.

They are still benefiting to some degree from credit leverage, since most of the banks had over-reserved, if you will, during the downturn. Now they are getting some benefit as their excess reserves start to come back down. But the banks are still extremely well - I would argue overly - capitalized, and so that, too, is starting to provide some benefit as the banks manage down those levels. We have seen a lot of banks increasing their dividends, and we are seeing more share buybacks. As we get a better feel for what the capital requirements are going to be for the banks, we'll see more capital management, particularly if we don't see much improvement in loan demand, which has been somewhat muted.

TWST: Are they experiencing any loan growth? What are the trends there?

Mr. Deer: They are. I've actually been a little surprised at the strength of certain types of loan growth. Some of that reflects reintermediation back into the industry, away from some nonbank lending that we saw in years past. The mortgage business has obviously been very good given the low interest rate environment, though most of the banks I cover are more commercially focused and so haven't really been beneficiaries of that. But there are a few banks that I cover, most notably First Republic Bank (FRC), which is a very unique franchise that focuses on private banking and wealth management. It has a very strong...

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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