U.S. Markets closed

Washington DC Provides Positive Macro Backdrop for Local Banks: An Interview with Brett Scheiner of FBR Capital Markets & Co. in the 2012 Regional Banking Equity Analysis Report

67 WALL STREET, New York - November 29, 2012 - The Wall Street Transcript has just published its 2012 Regional Banking Equity Analysis Report offering a timely review of the sector to serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investing in Regional Banks

Companies include: EagleBank (EGBN), Cardinal Financial (CFNL), Sandy Spring (SASR) and Virginia Commerce (VCBI) and many others.

In the following excerpt from the 2012 Regional Banking Equity Analysis Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What are the drivers for a fantastic macro environment there?

Mr. Scheiner: Nationally, the employment picture is what's holding us back. The opposite is the case in D.C. D.C., inside the Beltway, west of I-95, has mid-single-digit unemployment, has a few months of condo supply, and very high levels of education and median income. Housing prices have either been firm or up in certain areas.

It all starts with employment. A lot of that is driven by the federal government and lobbying firms, consulting firms, etc., but a rising tide lifts all, and even small businesses in the area have benefited from generally good employment trends. We actually think that that will continue. Some have discussed the fact that any potential cuts in the Department of Defense or cuts in Washington in general could in some ways derail that growth trajectory, but we feel that that is certainly not the case. D.C. grows every year. The federal government grows every year, and if they don't make a submarine in San Diego that they used to make there, it's certainly not going to cost either jobs or GDP dollars in the D.C. areas. We continue to like the D.C. macro backdrop.

And more than anything else, one of the ways you see that there will be continued excitement in the area is credit demand. The banks in the metro D.C. area that are healthy have been able to grow, and that's certainly not something we see nationally.

TWST: What are some of the key themes you are tracking as you look at the space in that region?

Mr. Scheiner: When we first rolled out coverage of the four largest, publicly traded banks in the metro D.C. area, what we were surprised by was the discrepancy between two banks that had had some credit trouble and two banks that had very limited credit troubles, very solid growth prospects and sufficient capital. All four basically traded at very similar book multiples, which didn't make very much sense to us.

Two years later, we now find that the troubled credit names have improved their credit situation tremendously; obviously, improving a tough credit picture in a market that's stable as D.C. is a lot easier than doing so in Atlanta or Vegas. The more credit-challenged names were able to get their financial house in order, and as we expected, the better-capitalized, growthier names have performed very well as well. The four banks are EagleBank (EGBN), Cardinal Financial (CFNL), Sandy Spring (SASR) and Virginia Commerce (VCBI)...

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.