There are risks in owning any public company, and to combat them, start by knowing about them. Our premium research reports break down the risks for key banks in the industry; this is an excerpt from our report on BB&T (NYSE:BBT).
What we see in so much of the banking and financial industry is over-reaching for profit and growth. In good times, credit risks tend to be underestimated, and in bad times, bankers get eager to squeeze a little extra yield. Banks can also get into trouble via acquisitions, stretching to areas outside their circles of competence and/or overpaying.
That hasn't been the case at BB&T, but it's always something to keep an eye on. What investors will want to ensure is that:
- BB&T sticks to its conservative lending policies even at the expense of near-term returns.
- Acquisitions are done at reasonable prices.
- Both organic and acquisition-driven expansion remain complementary to BB&T's core banking business.
From its home base in North Carolina, BB&T has expanded over the years to become a sizable regional player in the Mid-Atlantic and Southeastern regions of the U.S.
As business intermediaries, banks are heavily influenced by the economies in which they operate. From a national perspective, BB&T's prospects are affected greatly by interest rate spreads and factors like U.S. budget policy. And for good or ill, BB&T is tied to the deposits and lending it can do in its region. As real estate agents like to say, "every market is different."
As a response to the financial crisis, international bank regulations are tightening. Basel III rules will require increasing levels of capital to be held by banks. The hope is that this will stabilize the system for the good of all. The price for banks is less capital to deploy for potential profit, and more onerous regulatory hoops such as the Federal Reserve's annual stress tests for banks with more than $50 billion in assets (BB&T is part of this group).
Anand Chokkavelu, CFA, has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.