Regional Banks: Financial Losers

NEW YORK (TheStreet) -- Several large regional U.S. banks took it on the chin Thursday, with shares sliding 4%.

Regional banks seeing 4% declines included KeyCorp (KEY) of Cleveland, which closed at $11.60 and Regions Financial (RF) of Birmingham, Ala., closed at $9.21.

The broad indices ended mixed, after the euphoria of the decision Wednesday by the Federal Open Market Committee to leave Federal Reserve economic stimulus unchanged, wore off. The FOMC decided not to taper the central bank's "QE3" long-term bond purchases from a monthly pace of $85 billion. The Fed has expanded its balance sheet at this rate since last September.

Bank stocks were weak on Thursday. The KBW Bank Index (I:BKX) was down 1.4% to close at 63.77, with all but one of 24 index components ending with declines. The decision for the Fed not to lower bond purchases took most market watchers by surprise, and was greeted with enthusiasm Wednesday by the broad market. But bank stock investors need to worry about the Fed's main policy tool -- the federal funds rate, which has remained in range of zero to 0.25% since late 2008. The FOMC made a slight change in its language from the previous statement, saying its "highly accommodative" policy for short-term rates would "remain appropriate" at least until the national unemployment rate drops below 6.5%, assuming inflation projections remain in check, but added that it was likely to keep the federal funds rate in its current range "for a considerable time after the asset purchase program ends and the economic recovery strengthens." That's bad news for many regional bankers. Long-term interest rates have been rising, as investors have anticipated a tapering of the Fed's bond purchases. But many banks need a parallel rise in interest rates to see a significant boost to their net interest margins and net interest income. And that may take until at least late next year, depending on how accurate the FOMC's revised economic forecasts turn out to be. JPMorgan Chase The nation's largest bank holding company early Thursday was ordered by four regulators to pay $920 million in fines resulting from investigations of events leading to the "London Whale" hedge trading losses that totaled at least $6.2 billion during 2012.

Later on Thursday the Consumer Financial Protection Bureau announced that subsidiaries of JPMorgan had already refunded $309 million in fees paid by customers, resulting from "illegal credit card practices." The refunds went to roughly 2.1 million customers, to whom JPMorgan subsidiaries sold "credit monitoring" or "credit protection" products from 2005 through June 2012.

The Office of the Comptroller of the Currency also fined JPMorgan $60 million, which the regulator in a statement said reflected "the scope and duration of the violations and financial harm to consumers from the unfair practices."

JPMorgan Chase's total regulatory tab on Thursday came to $1.289 billion. The company's CFO Marianne Lake at a conference on Sept. 9 had said JPM was expecting net losses in its mortgage origination business during the second half of 2013, and that a "crescendo" of regulatory activity would lead to additions to third-quarter additions to litigation reserves "which will more than offset the $1.5 billion or so of consumer reserve releases."

The Wall Street Journal reported last week that JPMorgan expected its additional costs for enhanced regulatory compliance -- including legal expenses and the hiring of 5,000 employees -- would total $4 billion during the second half of 2013. But even that figure is significantly lower than the pretax losses from the "London Whale" last year, when JPMorgan booked net income of $21.3 billion, or $5.20 a share, which was the company's third-straight record annual profit. JPMorgan's shares were down 1.2% to close at $52.75. JPM data by YCharts Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock. RELATED STORIES: JPMorgan Slapped with $920 Million in 'London Whale' Fines JPMorgan Skewered for 'Illegal Credit Card Practices' Wells Fargo Continues Mortgage Staff Layoffs as Refinancing Volume Drops6 JPMorgan Whale Fines for Dummies: An Explainer Jamie Dimon as the Steven Cohen of Banking Existing Home Sales Highest Level Since February 2007 As Home Prices Rise, Borrowers Value Their Mortgages Again Buying Still Cheaper Than Renting -- Written by Philip van Doorn in Jupiter, Fla. >Contact by Email. Follow @PhilipvanDoorn ---

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.