Bank shot

McDonalds' Cummings picks knocked by interest rate hikes

Last year, the word on the Street was that banking stocks would take a hit because of the Fed’s love affair with rate hikes. In an attempt to keep ahead of inflation, the Fed raised rates six times over the past year, causing the sensitive banking industry to take a downward spiral ever since.

No wonder last year’s Private Screening picks of Fred A. Cummings, managing director of Cleveland-based McDonald Investments, landed in the red with a negative total return of 13.07%.

When be interviewed Cummings last year, he conceded that it would be a tough year for bank stocks, quoting returns of 4% instead of the frothy 20% gains realized from 1995 to 1997. At the time, he was confident that there was a herd of stallions among the field of banking stocks. (Cummings was not available for comment for this article.)

Yet, all of his five picks-which are financial holding companies with strong regional franchises-posted negative returns. Fifth Third Bancorp (Nasdaq: FITB), a behemoth in the financial services industry, edged out its peers with the only near single-digit slip, .96%. With a strong hold on the Cincinnati area, Fifth Third, recently agreed to buy Vanguard Financial, a Cincinnati-based financial services company, for an undisclosed sum, representing the latest of a string of mergers and acquisitions for the commercial bank.

Next up: Comerica (NYSE: CMA), the Detroit-based financial services provider with $40 billion in assets, fell 4.81%, over the past year, partly due to the rising interest-rate environment. But the company is staging a comeback. Their focus? Investment and small business services, which company officials expect to boost earnings.

A savings-bank holding company, Charter One Financial (NYSE: CF), based in Cleveland, plunged 16.50% since Cummings’ recommendation. In fact, Charter One’s investment rating was recently lowered by J.P. Morgan from buy to market performer. Their reason: The hint of future interest rate increases “and the company’s plan to maintain a relatively flat balance sheet,” which could hurt earning asset growth.

FirstMerit Corp. (Nasdaq: FMER) is an Akron, Ohio-based multi-bank holding company, whose stock more than took it on the chin, with its negative return of 20.85%. It was KO’d. Its customer base is throughout northern Ohio, and they’re serviced by individual affiliates, while the parent company directs overall policy.

Finally, Firstar Corp. (NYSE: FSR), a financial services firm based in Milwaukee, with $73 billion in assets and a focus on its commercial banking and trust businesses, was the worst of the lot. The company lost almost a quarter of its market value over the past year, plummeting 22.21% since Cummings’ recommendation. Analysts predict that the company will rebound, by leveraging its strengths in the Midwest regions and its credit card operation

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