For these banks to achieve "industry-like profitability" -- a return on tangible equity (ROTE) of 12.6% and return on assets (ROA) of 1.21%, investors will have to make "some pretty aggressive assumptions." These banks may struggle to achieve such targets given the fact that fee income is unlikely to move the needle, in the analyst's opinion, while loan loss provisioning is already well below historical levels. That means the only two drivers of profitability would be net interest margins and efficiency ratio. For Keycorp to earn a ROTE of 12.6%, it will have to generate a net interest margin of 4% and an efficiency ratio of 52% or a combination of 3.6%/55.3%. That compares to a NIM of 3.3% and efficiency ratio of 67.2%.
Regions will have to earn a NIM of 3.5% and efficiency ratio of 54.7% compared to current levels of 3.13% and 64.9%. SunTrust will have to generate NIM of 3.53% and efficiency ratio of 59% compared to 3.33% and 60.2% -- "the most feasible of the three banks" in Mutascio's view. -- Written by Shanthi Bharatwaj in New York. >Contact by Email. Follow @shavenk