After a gloomy 2011, this year the outlook for regional banks seems better, according to S&P Capital IQ.

With the U.S. not in recession, some solid employment and manufacturing reports, and — for the moment at least — relative quiet in Europe, banks appear on firmer footing than they have for some time, according to the report.

Europe, however, does remain a wild card. “The only thing, in our view, that could pose a real problem for U.S. banks this year would be another eruption” in the Euro zone. And this could take a number of forms, such as “a large bank requiring emergency assistance, investors refusing to recapitalize banks, a refusal of larger European countries to contribute to bailout packages,” according to the analysis.

For the moment, the Euro zone is relatively calm, and several regional banks — notably PNC Financial Services Group (PNC), Fifth Third Bancorp (FITB) and Regions Financial (RF) — look promising given where they’re priced now, according to the report.

There are a couple of ETFs that allow for exposure to regional banks, and S&P Capital IQ named two worth a closer look: iShares Dow Jones US Regional Banks (IAT) and SPDR S&P Regional Banking ETF (KRE).  IAT had a total return of-6.2% during the 12 months through Jan. 10, 2012 (versus -13.0% for its peer group), and KRE had a total return of 2.0% over the same time period.

Danielle Reed writes for Financial Planning.




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