Financial ETFs: The Good, the Bad and the Ugly | ETF Trends

Judging by the numbers, Wall Street’s big banks came roaring back in the second quarter. That may not necessarily mean that it’s time to start snapping up financial exchange traded funds (ETFs).

The good: The Federal Deposit Insurance Corp. (FDIC) ran the numbers, and banks made $21.6 billion in net income in the second quarter, with only 1.3% of all banks accounting for $19.9 billion of the total earnings., writes Marcy Gordon for Yahoo! Finance.

The ugly, though, is another number the FDIC released: the number of banks on the FDIC’s confidential “problem” list grew to 829 from 775 in the first quarter. [Community Bank ETF: Small Banks Endangered?]

Federal bailouts, record-low borrowing rates from the Feds and the ability to earn profits from fees on services and investment fees all aided in the recovery of big banks. On the other hand, smaller and regional banks depend upon revenue from loans for commercial property and development.

The FDIC calculates that U.S. bank failures will continue to cost the insurance fund about $100 billion through 2013.

And now for the bad: so far this year, 118 banks have failed, reports Michael R. Crittenden for The Wall Street Journal. Total loan and lease balances dropped 1.3% in the second quarter and total assets for the industry diminished by 1%. Still, almost two-thirds of U.S. banks reported a year-over-year improvement in quarterly results. Only 20% of banks reported a net loss. Sheila Blair, chairwoman of the FDIC, believes that “many banks see asset quality problems moderating.”

For more information on the financial sector, visit our financial category.

  • Financial Select Sector SPDR (NYSEArca: XLF)
  • SPDR KBW Regional Bank (NYSEArca: KRE)
  • iShares Dow Jones U.S. Regional Banks (NYSEArca: IAT)
  • First Trust NASDAQ ABA Community Bank (NASDAQ: QABA)

Max Chen contributed to this article.

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.