Renewable Wealth Portfolio: KBW Regional Banking

Welcome to the second entry in the Renewable Wealth model investment portfolio! Our second pick is an ETF of regional banks, called the KBW Regional Banking SPDR. It trades under the symbol KRE .

Local Banking is a Socially Responsible Investment

You’re probably wondering how a collection of local and regional banks fits into a portfolio focusing on environmental and socially responsible investing. We consider this investment to be a vote against the big international banks that are the root of many of the oppressive financial problems our country is presently facing.

The subprime mortgage meltdown, for example, is a creation of the international banks, who played on investor greed by bundling up large collections of risky mortgages, securitizing them, and labeling them as ultra-safe, high yield investments, when in fact they were anything but. Because of the volume involved, and the huge profit potential for the banks and brokerage houses selling them, the banks didn’t bother to do their homework to ensure that these loans were in the best interests of the borrowers, the lenders, or the purchasers of the securities.

It’s just the latest in a long line of excesses by big banks and Wall Street stuffed suits that have rocked our economy and damaged our currency, and have burdened the American people with staggering costs. Meanwhile, the instigators can always rely on the Fed to bail them out and transfer the bulk of the losses to the rest of us.

Local is Better - This Goes for Banks as Well

Regional banks tend to be far more conservative about their investments than the big boys. They don’t tend to engage in the sort of financial hocus-pocus that always seems to get the Wall Street hogs into trouble. Case in point: Regional banks largely were not involved with the subprime mess, and most have little if any subprime exposure. Further, what subprime exposure they have is most likely to come from their own direct, face-to-face customers, and local banks are far more likely to have done all the research to ensure their borrowers can actually afford the mortgages they take out. By and large, they never suffered from the illusion that they could “diversify away” their risks from bad loans with massive roll-ups of lousy debt.

Of course that hasn’t stopped local bankers from being hit by a massive sell-off along with the entire banking industry. The shares are down well over 30% from their 5-year highs. It’s unfair, but it creates a nice opportunity for us to get in at a great price.

We could talk at length about all the other excesses of big banks, such as aggressive marketing of expensive debt, exploitation of the poor and uneducated, aggressive collections tactics, deceptive business practices, the funding of corporate abuses, and more, but we’re sure you get the picture. The point is that international banks are a scourge, and buying into local banks is a great way to vote for a better way.

A Huge Yield

Because of the recent beating in share price, KRE currently offers a huge dividend yield of 11.62%. The impressive yield, along with an excellent prospect for capital gains as the share price rationalizes, make KRE an excellent prospect. We are pleased to announce it as our second pick for the Renewable Wealth Model Portfolio.