From the Record:
Subprime woes take toll on regional banks
Valley National Bancorp Chief Executive Officer Gerald Lipkin thinks regional banks such as his are being unfairly punished by investors anxious over subprime mortgage writedowns at large banks. Shares at Valley have fallen 25 percent this year.
“The big banks blundered trying to show analysts how fast they can grow,” said Lipkin, the longtime head of Wayne-based Valley. “We don’t have any subprime loans, and most of my contemporaries have little or none on their books.”
However, there may be more anxiety ahead for Valley.
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Many lenders have been hard-pressed to increase earnings as more subprime loans go bad, the housing market stumbles and the ability of lower-risk borrowers to pay back loans becomes a concern.Valley is not insulated from some of those concerns, although the Keefe Bruyette analysts acknowledged the bank’s conservative lending practices in their report. They predicted the bank will do “relatively well [next year] from a loss perspective.”
But they expect Valley will still have to set aside more funds in a loan-loss reserve, which will cut into profits.
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Valley, the largest commercial bank based in North Jersey, earned $125.6 million in the first nine months of this year, unchanged from the same period in 2006.Loan charge-offs rose in that period to $9.7 million from $7.6 million in the previous year.
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Citigroup analyst Keith Horowitz — who does not cover Valley — on Friday reduced ratings on most of the banks he follows, citing an “increasingly difficult environment.”PNC Financial Services Group, which has little subprime exposure, was lowered to a “hold” rating. Pittsburgh-based PNC recently warned that fourth-quarter earnings would be less than previously thought because of a drop in the value of commercial real estate loans.