Regional banks hit hard by recession

Bank behemoths Citi and BofA aren't the only ones struggling. Smaller regional banks across the country are getting hurt by rising credit costs as well.

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By David Ellis, staff writer

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  • Yes, I'm worried about layoffs.
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NEW YORK ( -- It is not just the big guys in banking that are taking a hit in this recession. Regional banks across the nation are also posting dismal results for the fourth quarter.

Two of Ohio's biggest financial institutions -- KeyCorp (KEY, Fortune 500) and Fifth Third Bancorp (FITB, Fortune 500) -- both swung to a loss during the quarter, reporting numbers that were far worse than analysts were anticipating.

Shares of Fifth Third were hit hard in Thursday trading, losing a quarter of their value. Investors found some good news buried within Key's dismal results though. Its stock bucked the downward trend and edged slightly higher.

Companies headquartered in the Southeast, considered one of the fastest growing regions for banks, were hardly immune to the economic downturn either.

SunTrust (STI, Fortune 500), headquartered in Atlanta, recorded a $379 million loss Thursday. That follows the whopping $6.2 billion loss reported by Birmingham, Ala.-based Regions Financial (RF, Fortune 500) just a day earlier. Shares of both banks fell in Thursday trading.

An attempt to cope with rising credit costs is one factor driving the losses at several regional banks. SunTrust, for example, set aside $962.5 million to combat future loan losses. The company also said the percentage of loans it doesn't think are collectible more than tripled during the latest quarter.

"We are under no illusions as to the severity of this credit cycle," said SunTrust Chairman and CEO James Wells III in a statement accompanying the firm's results.

But despite the lackluster performance by many regional banks, one banking executive stressed that his bank is well capitalized and looking to lend money.

"We are actively seeking new borrowers," said Kelly King, CEO of Winston-Salem, N.C.-based BB&T (BBT, Fortune 500) in a statement Thursday. The bank reported that fourth-quarter profits fell to $284 million, or 51 cents a share. But earnings did beat Wall Street's estimates.

Legislators will probably keep a close watch on just how many new loans BB&T and other regional banks are issuing, however.

Most regional banks have received government money from the first half of the $700 billion bank rescue program that was passed by Congress last fall. The hope was that banks would use this capital to get credit flowing to consumers and businesses and boost the economy.

But some financial institutions have used the funds instead to shore up their balance sheet or even acquire rivals. That has drawn the ire of lawmakers as Congress prepares to release the second half of the bailout money. To top of page

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