BB&T's "Beat" Can't Mask a Struggling Sector

The banking sector continues to struggle with elevated levels of losses on residential mortgage and consumer loans (and we have yet to see the full extent of the damage in commercial real estate). In that environment, no large lender can walk away unscathed. Sure, BB&T (NYSE: BBT  ) came in one penny ahead of the analysts' consensus forecast of $0.22 per share, but as the following table shows, that target has come down sharply over the past six months:

Bank	% Change Q3 2009 Earnings-Per-Share Estimate Last Month	% Change Last 3 Months	% Change Last 6 Months
BB&T (NYSE: BBT  )	(10.9%)	(33.1%)	(41.9%)
M&T Bank (NYSE: MTB  )	(4.5%)	1.9%	0.9%
PNC Financial (NYSE: PNC  )	(11.4%)	(51.4%)	(57.4%)
Wells Fargo (NYSE: WFC  )	9.5%	29.5%	14.5%

Source: Capital IQ, a division of Standard & Poor's.

Predictably, BB&T's year-on-year comparisons are horrendous: Earnings per share fell by nearly two-thirds, while provisions for credit losses more than doubled to $705 million. However, early loan delinquencies and charge-offs (loans that are deemed unrecoverable) appear to be stabilizing, while non-performing loans continue to increase.

Perhaps inveterate bulls thought that solid results from JPMorgan Chase (NYSE: JPM  ) and Goldman Sachs (NYSE: GS  ) last week would set the tone for the entire financial sector. While universal banks such as JPMorgan usually rely on their straight-laced commercial banking divisions to buffet the volatility of results in capital markets activities, the opposite phenomenon is occurring this year, with many market-related activities going gangbusters while consumer and mortgage loan books continue to rack up losses. In that regard, pure commercial banks such as BB&T are at a disadvantage.

Long-term: positive; short-term: difficult
BB&T has long been regarded as a well-run lender; I think that still holds, and that it is well-positioned over the long term (the acquisition of parts of the failed Colonial Bank looks like a great opportunistic purchase, for example). However, the current environment is an enormous headwind by which even the best banks are being held up; investors should expect that to last well into next year.

As we emerge from the recession, this is exactly the time to buy these stocks.