By Matt Krantz
Investors used to think buying shares of big New York banks was the way to put money in their bank.
But following the failure of Bear Stearns, investors have rethought their blind faith in big, money center financial institutions. And that's created a bind for investors who are tempted to buy into financial companies, but are still afraid that the big Wall Street firms may have some more negative surprises. On Monday, for example, Standard & Poor's lowered its debt ratings on Merrill Lynch, Lehman Brothers and Morgan Stanley.
Perhaps that's what lead you to investigate community banks. In some cases, community banks have been much more prudent than the big boys and avoided big problems by being "old fashioned." Read more about that here.
Historically, regional banks have been solid performers. They've generally paid attractive dividends and have been steady takeover targets. Regional banks also generally fall into the value-priced category, which has been an excellent investment style over the long run.
But lately, things haven't been so rosy, as fallout from the current housing and credit crises have fallen on these banks, too. The KBW Regional Banking exchange traded fund (KRE) has lost a third of its value since it began trading in June 2006. And a number of smaller banks, especially those with subprime exposure, have run into trouble and hurt the sector.
That's why, if you're interested in investing in regional banks, it makes sense to spread your bets over a handful of stocks. A few ETFs, such as KRE , mentioned above, make this easy to do. A few other choices include the HOLDRS Regional Bank ETF (RKH) and iShares DJ US Regional Banks ETF (IAT).
An even better idea might be to invest in a stock index mutual fund that owns small, value-priced stocks. That way, you'll get exposure to small banks, and also broaden your portfolio in case there's more trouble brewing for the financial sector.
