Finance Space

Putting your money in the bank, as in opening a savings account or a certificate of deposit, is a perfectly smart thing to do. Investing in the bank, as in buying its stock, is something else entirely.

That many banks are shaky is a measure of how deeply the housing crisis is rattling the financial system. Institutions involved in the slicing and dicing of mortgages issued to people who couldn’t afford them and that overextended themselves in home equity loans are paying a heavy price. The latest to hand its chief executive a golden ticket out of town: Wachovia (WB), joining the ranks of Citigroup (C) and Washington Mutual (WM).

Federal regulators Thursday told the Senate Banking Committee they expect more turmoil and bank failures in the months ahead.

But many smaller banks, knowing local needs and their own limits, never overindulged in the risky practices. Their stocks are attractive because they’ve been brought low by the battering for the whole sector.

Chicago-based Howe Barnes Hoefer & Arnett, which rates banking stocks, has published a recommendation summary. There aren’t a lot of “buys” on the list. Howe Barnes analysts recommend stocks whose earnings they believe will justify a sharply higher share price over the next 12 months.

Midwest banking firms it likes are HMN Financial (HMNF), Horizon Bancorp ((HBNC), Indiana Community Bancorp (INCB), MidWestOne Financial Group (MOFG), Southwest Bancorp (OKSB), Taylor Capital Group (TAYC) and, a surprise, Corus Bankshares (CORS). Based in Chicago, Corus has been hit by its loans in Las Vegas and Florida, and its shares are down 50 percent this year. Howe Barnes has a 12-month target of $9 on the shares, which closed Friday at $4.99.

Other stocks on its picks list are: Bridge Capital Holdings (BBNK), Capital Corp. of the West (CCOW), Center Financial Corp. (CLFC), First California Financial Group (FCAL), North Valley Bancorp (NOVB), Pacific Premier Bancorp (PPBI), Preferred Bank (PFBC), Teche Holding (TSH) and Yadkin Valley Financial (YAVY).

FLY LOW: Airlines are prominent in the news, with mergers and bankruptcies everywhere. If you’ve got an urge to invest in airlines, take something for the fever and lie down until it goes away.

Then, read a report by Morningstar’s Marisa Thompson. Access it through the Morningstar link at the Yahoo! Finance Web site. She rates Southwest Airlines (LUV) as the best of the motley lot, largely because it locked in fuel contracts at low cost. On UAL (UAL), she said its ardent hunt for a merger partner may betray a serious cash shortage.

CBOE SEE-SAW: How much is the Chicago Board Options Exchange worth? If you figure that its last reported seat sale was an even $3 million, and it has 931 seats, it works out to about $2.8 billion.

But for Chicago Board of Trade members, the valuation can be a real deal. The CBOE last week settled its ownership dispute with the Board of Trade, agreeing that certain Board of Trade members are entitled to 18 percent ownership plus $300 million. That would be forthcoming when the options market goes private, which it is expected to do later this year now that the deal has been reached.

A source said Board of Trade’s adviser in the fracas, William Blair & Co., estimated the CBOE will command a market value of $4 billion to $6 billion if it goes public.

The estimate seems reasonable, but there are some dangers in the CBOE valuation. One is that its volume is heavily dependent on its retaining its exclusive license with Standard & Poor’s to list options on its indexes. The other is that the window to easy riches for exchanges that go public may have closed.

Case in point is the stock of the Board of Trade’s parent, CME Group (CME), which closed Friday at $387.60, its lowest since early 2006. The stock is down about 40 percent this year. The reasons are worries that the subprime mess will cause institutions to play around less with futures contracts — and indeed volume growth is moderating — and a lingering worry that federal regulators will force CME to divest its clearing division.

But I’ll bet these concerns are transitory. CME is a cash machine and is a likely purchaser of the CBOE once it goes private.

CBOE Chairman William Brodsky still has to sell the Board of Trade settlement to skeptical members. But he’s adept at counting noses. Once the deal is finished, look for Brodsky to methodically move toward an IPO, planning for when he gets competing takeover proposals from CME and NYSE Euronext (NYX). That’s when the real fun will start.

CLOSING QUOTE: “Most blame OPEC, which is an easy culprit: in fact, the real responsibilities for insufficient supply are squarely in the camp of the developed economies. Between 2003 and 2007, production dropped by 0.7 mbd [million barrels per day] in Norway, 0.4 mbd in the United Kingdom, and 0.3 mbd in the United States. Production in OPEC, on the other hand, was on the rise, increasing by 1 mbd in 2007 alone.” — Adolfo Laurenti, senior economist, Mesirow Financial

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Tags: banks, Investing