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Avoid banks with exposure in problem states Reuters 12-08 An analyst at Morgan Stanley recommended avoiding banks with significant exposure to states with the highest level of seriously delinquent loans, including Florida, Nevada, and California. Colonial BancGroup (CNB) is at the most risk among U.S. mid-cap banks from its exposure to states with high levels of delinquent loans, analyst Ken Zerbe said in a note to clients. With high exposure in troubled Michigan and Ohio, Comerica (CMA) and Huntington Bancshares (HBAN) are also likely to suffer from higher delinquency levels, Zerbe said in a note to clients. J.P.Morgan Securities analyst Steven Alexopoulos also expressed concerns for U.S. mid-cap banks on lower loan demand and weak equity markets. "Overall, the tones from banks were generally negative, particularly with regards to loan demand and credit trends," Alexopoulos said with regard to a recent conference. Residential construction is still worsening and continued pressure on commercial and industrial loans is likely to result in mounting losses for the U.S. mid-cap banks over the next several quarters, he noted. Morgan Stanley's Zerbe said he favors banks like Hudson City (HCBK), People's United Financial (PBCT) and SVB Financial Group (SIVB) with high-quality loan portfolios, strong capital positions, and solid loan growth. Zerbe rates all the three stocks "overweight." "Conversely, we are more cautious on the outlook for banks with significant exposure to the more problematic geographies and loan types -- commercial, residential construction, and home equity," Zerbe said. The analyst's highest conviction underweight-rated stocks are Comerica, Synovus Financial Corp (SNV), Associated Banc-Corp (ASBC), and TCF Financial (TCB). Zerbe also identified Bank of Hawaii (BOH) and Washington Federal (WFSL) as having the least exposure to delinquent loans by footprint. "Seriously delinquent" loans have risen to 5.2%, according to The Mortgage Bankers Association's third-quarter National Delinquency Survey, Zerbe said. J.P.Morgan's Alexopoulos said while the purpose of U.S. Treasury's preferred capital injections under Troubled Assets Relief Program (TARP) was to fund loan growth, the bank managements noted in the conference that TARP capital will likely be used to strengthen the balance sheet in light of mounting economic uncertainty. "However, in the spirit of the TARP program, managements aim to ultimately use the capital to fund loan growth as well as pursue acquisitions -- mostly Federal Deposit Insurance Corporation assisted near-term," he said. US Bancorp to expand loan loss reserve in 4Q AP 12-11 U.S. Bancorp shares slid Thursday after the commercial bank said it expects to set aside more than $1 billion during the fourth quarter to cover potential loan losses. USB expects net charge offs, or loans written off as unpaid, between $600 million and $650 million in Q4-08, according to a presentation made by CEO Richard Davis at a Goldman Sachs conference. This is up from $498 million in Q3-08. The bank also expects non-performing loans to increase. As a result, U.S. Bancorp expects to significantly expand its loan loss provision to between $1.14 billion and $1.37 billion in the fourth quarter, representing 190% to 210% of total expected charge offs. USB set aside $748 million for loan losses during the third quarter. USB said it expects to continue building its loan loss reserves until the outlook for credit improves. Furthermore, U.S. Bancorp expects to take an impairment charge of between $200 million and $300 million in the fourth quarter due to unexpected credit losses and declining prices on mortgage-backed securities and other complex investments. The bank took an impairment charge of $257 million in the third quarter. Stifel, Nicolaus & Co. analyst Christopher Mutascio said these charges let him to reduce his fourth-quarter profit estimate from 48 cents to 20 cents. Mutascio, who has a "Hold" rating on the shares, said his estimates are under review. U.S. Bancorp, which has been weathering the downturn in the housing sector better than many of its peers, said it remains well capitalized by regulatory standards. Following an infusion of capital from the Treasury Department, the bank's pro forma tier 1 capital ratio, a measure of financial strength, increased to 11.4 percent from 8.5 percent. Last month, U.S. Bancorp received approval for a $6.6 billion investment from the Treasury in the form of preferred stock. The government investment is part of a broader $250 billion program to invest in banks amid the ongoing credit crisis in an effort to stabilize the financial services sector and spur lending between banks and to consumers and other businesses. U.S. Bancorp has also been able to capitalize on the current economic downturn by acquiring the banking operations of two failed California institutions from the Federal Deposit Insurance Corp. The recent acquisitions of Downey Savings & Loan and PFF Bank & Trust added about $17 billion in assets and $12 billion in deposits. As part of the transactions, U.S. Bancorp agreed to assume the first $1.5 billion of expected losses on Downey's assets, and the first $100 million of expected losses on PFF's assets. Any losses above that will be absorbed under a loss sharing agreement with the FDIC. Ratings & Dividend Changes - December On 12-09 SNV declared a dividend of $0.06/share payable on January 2, 2009, to Synovus shareholders of record as of the close of business on December 18, 2008. On 12-09 Ladenburg Thalmann analyst Richard Bove cut his estimates on Fifth Third Bancorp, due to his expectations for increased loan losses in the coming quarters. Bove now expects full-year earnings of $0.11/share, down from a prior estimate of $.016/share. He also reduced his 2009 estimate to $0.77/share from $.94/share. Analysts surveyed by Thomson Reuters, on average, predict a profit of $0.08/share in 2008 and $0.70/share in 2009. Bove said it seems likely that Q4-08 loan losses may be higher than those posted in Q3. Total net losses charged off in Q3 were $463 million. Additionally, 2009 loan losses could be higher than in 2008, as Fifth Third's primary markets of Ohio and Michigan likely face further disruption from the troubles in the auto industry. "Overall, it appears that Fifth Third will be able to grow its net interest income due to less competition leading both to higher market share and better margins," Bove wrote. "Virtually all of the gains, however, may be eroded by loan losses." Bove maintained a "Neutral" rating on the shares and cut his 12-month target price to $11 from $15. On 12-22 Boenning & Scattergood Initiated FULT at Market Perform. On 12-19 FTN Midwest Downgraded FULT from Neutral to Sell. On 12-18 Keefe Bruyette Upgraded NTRS from Market Perform to Outperform. On 12-17 JP Morgan Downgraded SNV from Overweight to Neutral. On 12-15 Sun Trust Rbsn Humphrey Downgraded SNV from Buy to Neutral. On 12-11 Keefe Bruyette Downgraded ONB from Market Perform to Underperform. On 12-16 FITB declared a reduced dividend of $0.01/share, a reduction from the third quarter level of $0.15/share. The dividend will be payable on January 22, 2009 to shareholders of record on December 31, 2008. "Fifth Third and the banking industry are currently operating in a very difficult environment, particularly related to trends in economic activity and employment levels," said Kevin T. Kabat, chairman, president and CEO of Fifth Third Bancorp. "It is not currently clear when those trends will begin to improve but we do not expect improvement in the near term. On 12-18 Goldman Sachs Group analyst Brian Foran said BB&T is likely to have to increase its loan-loss reserves through 2009, which led an analyst Thursday to add the regional bank to a "Conviction Sell List" and cut earnings estimates. Foran said continued deterioration in credit quality, especially for mortgages concentrated in BB&T's Southeastern operations, will force the bank to increase its reserves. Those added reserves will reduce earnings potential in 2009 and 2010, Foran wrote in a research note. Foran said BB&T will probably have to increase reserve levels from the current 1.4 percent of total loans to about 2 percent over the next year. That reserve build will cut into the bank's profit. Foran cut his 2009 earnings estimate to $1.75 per share from $1.90 per share. He slashed his 2010 estimate to $2.10 per share from $2.30 per share. Analysts polled by Thomson Reuters, on average, forecast earnings of $2.32 per share for 2009 and $2.88 per share for 2010. Though Foran said that BB&T is one of the stronger banks amid the ongoing economic downturn, its valuation is still much higher than peers, which also factored into him adding the bank to the sell list. Foran's price target for the stock is $24. Ratings & Dividend Changes - November On 11-20 FMER declared a dividend of $0.29/share payable December 15, 2008 to shareholders of record on December 1, 2008. On 11-05 Bernstein Research downgraded U.S mid-cap banks Synovus Financial (SNV) and Marshall & Ilsley (MI) to "market perform" from "outperform". The brokerage cut its ratings of Synovus and Marshall & Ilsley "on both valuations approaching our price targets and prolonged weakness in residential construction portfolios, where losses are likely to exceed our prior forecast," it said in a note to clients. "Looking out 12 months, we believe the market will focus on a sequentially better 2010 and more normal tangible returns of 16% to 18%," it said. Bernstein said it saw a peak in charge-offs in the third quarter of 2009 at the earliest. Bernstein Upgraded FITB from Market Perform to Outperform based on valuations. On 11-07 Analysts at Janney Montgomery Scott on Friday cut their earnings estimates on custody banks Bank of New York Mellon (BK), State Street (STT) and Northern Trust (NTRS) on weak outlooks and expectations of lower asset growth. "Moreover, client losses in securities lending portfolios will lead to significant reductions in fees associated with this ancillary service activity, with no corresponding short-term offset," the analysts said in a research note. "Our expectations are for overall fee income growth to turn negative next year," they said, citing lower markets and weaker results in foreign exchange and securities lending. On 11-24 Stifel Nicolaus Upgraded USB from Sell to Hold. On 11-24 Stifel Nicolaus Upgraded CHCO from Hold to Buy. On 11-20 Sterne Agee Upgraded BBT from Sell to Hold. On 11-14 Keefe Bruyette Upgraded SNV from Underperform to Market Perform. On 11-11 Deutsche Securities Downgraded CMA from Buy to Hold. On 11-05 Bernstein Downgraded SNV from Outperform to Market Perform. On 11-05 Bernstein Downgraded MI from Outperform to Market Perform. On 11-05 Bernstein Upgraded CMA and FITB from Market Perform to Outperform. On 11-04 B. Riley & Co Downgraded FULT from Buy to Neutral. On 11-25 Moody's Investors Service said that it may downgrade the debt ratings on Marshall & Ilsley, and expressed concern over weakness in the regional bank's real estate portfolio. Moody's placed under review for possible downgrade the holding company's "A1" senior debt rating. A rating of "A1" is considered investment grade. Moody's also placed the lead bank's financial strength rating of "B" on review. Home Page Factoids Previous Update |