Magazine article American Banker

Rate Move Delivers Quick Boost for Midwest Stocks

Magazine article American Banker

Rate Move Delivers Quick Boost for Midwest Stocks

Article excerpt

Several banking companies in the Midwest reported dismal fourth-quarter results Tuesday, including staggering loan losses.

The outlook for this year is, on the whole, tenuous. However, on a day when the Federal Reserve Board cut the federal funds rate by 75 basis points, to 3.5%, to address mounting recession worries, investors read the cut as something that could bring the greatest benefit to companies like KeyCorp, National City Corp., and Fifth Third Bancorp, since much of their business is concentrated in one of the nation's slowest-growth regions.

All three companies said Tuesday that they were mauled by the credit crisis last quarter.

Analysts said the 75-basis-point cut, the Fed's first in 14 years, could have the most immediate benefit on states like Ohio and Michigan, where the loss of manufacturing jobs over the last two years has left the economy genuinely weak.

The region is less affected by a bursting housing bubble than places like Florida and California, observers said.

On Tuesday investors bought shares of Fifth Third, which rose 4.1%, and Nat City, which climbed 6.7%. KeyCorp soared 12.6% on the day.

The trend enveloped a string of regional companies, including much smaller ones. Shares of Flagstar Bancorp Inc. of Troy, Mich., rose 11.1%. First Place Financial Corp. of Warren, Ohio, climbed 8.9%, and FirstMerit Corp. of Akron rose 11.6%.

Jeff K. Davis, an analyst at First Horizon National Corp.'s FTN Midwest Research Securities Corp., said investors engaged in "a healthy dose of short-covering," particularly with Nat City, whose stock opened Tuesday at a 52-week low.

And Gerard S. Cassidy, an analyst at Royal Bank of Canada's RBC Capital Markets, said that because most companies preannounced the worst of their problems, the markets had already factored in the grim earnings news and gave certain stocks a platform from which to go up. …

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