Wall Street banks are stumbling but smaller regional and community banks, along with related exchange traded funds, could pick up the pace.
For example, the First Trust NASDAQ ABA Community Bank Index Fund (NasdaqGM: QABA), PowerShares S&P SmallCap Financials Portfolio (NYSEArca: PSCF) and PowerShares KBW Regional Bank Portfolio (NYSEArca: KBWR) target smaller companies in the financial space. QABA market-cap weights include small-cap 36.1% and micro-cap 38.1%. PSCF holds small-cap 69.9% and micro-cap 27.9%. KBWR includes small-cap 67.5% and micro-cap 13.8%.
The U.S. banking industry recorded its first annual profit drop in 2014, the industry’s first decline in five years, with banks’ net income dipping about 1% year-over-year as seven of the 10 largest banks posted lower earnings, reports Victoria McGrane for the Wall Street Journal.
The Federal Deposit Insurance Corp. pointed to lower mortgage sales, securitization and servicing, along with increased litigation expenses, as contributing factors to the yearly drop in earnings.
While the largest banks in the sector dragged down the industry as a group, the the vast majority of the country’s 6,509 banks reported higher earnings for 2014.
“The banking industry continued to improve at the end of the year,” FDIC Chairman Martin Gruenberg said, noting that community banks did particularly well, with earnings up 28% over the fourth quarter year-over-year.