NEW YORK--(BUSINESS WIRE)--The outlook for U.S. niche real estate banks for the remainder of 2013 is mixed given various idiosyncratic risks facing individual banks and the overall market environment, according to a new Fitch Ratings report.
Earning headwinds are a risk the entire group, although some of Fitch's lower rated niche banks have some potential ratings upside in the medium term due to improving asset quality. Furthermore, regulatory changes should have a mixed impact throughout the group, as residential lenders will face heighted burdens from new regulations relative to commercially focused lenders.
For the third consecutive year all of the niche banks posted positive results. The median ROA for the group is nearing pre-crisis levels. However, core earnings for the group are expected to face headwinds in the near term as reserve releases slow and banks continue to combat margin pressures. Niche banks are especially susceptible to margin pressure since they have very little fee income revenue. Fee revenue totals 14% of total revenue versus 27% for mid-tier regional banks (banks with $10bn-$35bn in assets).
The five issuers in Fitch's niche real estate bank portfolio typically employ focused strategies with limited product offerings and limited revenue diversification. Fitch generally views asset concentrations negatively. This view is balanced against these institutions' demonstrated ability to implement core strategies with limited volatility through economic cycles.
Fitch also notes that unlike most of the banking industry, many of the niche banks are actively pursuing opportunities to expand their branch network to reduce reliance on wholesale funding.
On April 10, 2013, Fitch reviewed the ratings for the five banks in its niche real estate peer group. Following the review, Fitch upgraded Emigrant Bancorp, Inc.'s (EMIG) long-term Issuer Default Rating to 'B' from 'B-'. Fitch also affirmed the remaining four niche bank ratings - Astoria Financial Corporation, CapitalSource, Inc., Dime Community Bancshares, Inc., and New York Community Bancorp, Inc.
The full report 'U.S. Banks - Niche Real Estate Lenders' is available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: U.S. Banks - Niche Real Estate Lenders (Core Competencies Bring Balance to Concentration Risk)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709099
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