Third quarter profits at federally-insured banks and thrifts tumbled to a four-year low leaving investors feeling queasy about finance-related stocks and exchange traded funds(ETFs). Large institutions set aside billions to cover losses from bad mortgages, reports Alan Zibel for Associated Press. This highlights the deterioration within the housing and mortgage markets. Another rate cut by the Federal Reserve could give banks a boost.

Profits at 8,560 FDIC-insured banks dropped $9.4 billion, or 24.7%, to $28.7 billion. These are hampered by soaring loan defaults and provisions for loan losses. Credit performance will have to get worse before it gets better, as 1.5 million borrowers are about to see their loans reset next year, at higher interest rates.

Bank ETFs include:

  • iShares Dow Jones U.S. Regional Banks Index Fund (IAT)
  • KBW Bank ETF (KBE)
  • KBW Regional Banking ETF (KRE)
  • Merrill Lynch Regional Bank HOLDRs (RKH)
  • PowerShares Dynamic Banking Portfolio (PJB)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.