U.S. Markets closed

Senate Banking Bill Loosens Key Dodd-Frank Norms: 5 Picks

Swarup Gupta
Kinder Morgan (KMI) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

On Mar 14, the Senate passed a crucial Bill easing several of the regulations, which were put in place to guard against a repeat of the 2008 financial crisis. The proposed legislation loosens norms mandated by the 2010 Dodd-Frank Act, which were put in place after the crisis led to many Americans losing their homes and jobs.

The major beneficiaries of the new legislation appear to be regional banks, smaller community banks, regional lending institutions and credit unions. Though larger banks also received crucial reprieves, these were minor compared to the relief received by their smaller counterparts.

The legislation now faces a crucial test in the House of Representatives, but given the bipartisan support it has received, smaller banks can expect easing up of regulations going forward. With rates set to rise and economic growth looking strong, investing in these banks looks like a smart option at this point. 

Regional Banks Receive Reprieve

The Senate’s banking Bill aims to raise the threshold for banks which are deemed too big to fail. This limit, currently set at $50 billion in terms of assets, will now be raised to $250 billion. This implies that only the largest U.S. banks would have to abide by the most stringent regulations stipulated by the Federal Reserve.

This means that several midsized banks would no longer have to submit “living will” regulations which elaborately specify how banks intend to safely dispose of its assets in case of a failure.  Also, they would no longer have to undergo Federal Reserve stress tests on an annual basis.

The beneficiaries of this clause include household names such as BB&T Corporation BBT, Fifth Third Bancorp FITB, SunTrust Banks, Inc. STI and American Express Company AXP.

Major Relief for Community Banks

Other major beneficiaries of the proposed law are smaller community banks and credit unions. Banks of this nature with less than $10 billion in assets will no longer have to comply with the Volcker Rule. This regulation prevents financial institutions from engaging in speculative trading. It was put in place to stop such banks from selling risky mortgages and to ensure that they could withstand difficult business conditions.

Smaller banks have complained for some time that they were subject to rules which were targeted primarily at bigger financial players. A more contentious reprieve intends to reduce reporting requirements for mortgage data. Additionally, smaller banks would no longer have to comply with strict mortgage underwriting norms put in place by the Dodd-Frank Act.

This rule was intended to determine whether banks were giving loans only to these individuals who had the ability to pay back these amounts. However, smaller banks have long complained that they find it difficult to comply with such regulations. The Bill’s supporters argue that the relaxation of these clauses will enable easier disbursal of mortgages and business loans, especially in rural areas.

Our Choices

The Senate’s new bipartisan legislation significantly eases norms for mid-sized and smaller banks. While their ease of doing business will increase substantially if the new law is implemented, compliance related costs will likely decline.

A stronger rate environment and an encouraging economic backdrop are already proving to be beneficial for banks. Given that regulatory restrictions are also likely to ease up in the near term, it makes sense to invest in smaller banks at this time. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

BCB Bancorp, Inc. BCBP operates as the holding company for BCB Community Bank, a state chartered commercial bank that provides banking products and services to businesses and individuals in the United States.

BCB Bancorp has expected earnings growth of 30.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 14.3% over the last 30 days. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CB Financial Services, Inc. CBFV is the bank holding company for Community Bank, a chartered commercial bank.

CB Financial Services has a Zacks Rank #2 (Buy). The company has expected earnings growth of 22.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 11.4% over the last 30 days.

Triumph Bancorp, Inc. TBK is a financial holding company for TBK Bank, SSB with a diversified line of community banking, commercial finance and asset management activities.

Triumph Bancorp has a Zacks Rank #2. The company has expected earnings growth of 36.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.9% over the last 30 days.

United Community Banks, Inc. UCBI is a bank holding company for United Community Bank that offers retails and corporate services to companies and individuals.   

United Community Banks has a Zacks Rank #2. The company has expected earnings growth of 36% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.6% over the last 30 days.

BB&T Corporation is a diversified financial holding company. BB&T is one of the major providers of banking and financial products in the United States.

BB&T Corp has a Zacks Rank #2. The company has expected earnings growth of 40.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days.

Can Hackers Put Money INTO Your Portfolio?

Earlier this month, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.

Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.

Download the new report now>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
BB&T Corporation (BBT) : Free Stock Analysis Report
 
SunTrust Banks, Inc. (STI) : Free Stock Analysis Report
 
Fifth Third Bancorp (FITB) : Free Stock Analysis Report
 
CB Financial Services, Inc. (CBFV) : Free Stock Analysis Report
 
Triumph Bancorp, Inc. (TBK) : Free Stock Analysis Report
 
United Community Banks, Inc. (UCBI) : Free Stock Analysis Report
 
American Express Company (AXP) : Free Stock Analysis Report
 
BCB Bancorp, Inc. (NJ) (BCBP) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research