Bailout Banks Look to Escape TARP Trap

But David Rochester, an analyst at Friedman Billings Ramsey, worries about TCF's home equity exposure.

"While we continue to believe [TCF Financial] has an attractive deposit franchise, we expect consensus EPS to decline materially over the next six months on worsening credit and weaker fee income expectations, driving strong multiple compression," Rochester writes in a note on Tuesday. He expects TCF to cut its dividend this year.

Rochester, who rates the company at underperform, is primarily concerned with TCF's $2 billion of second-lien home equity loans, in which it does not hold the first lien position. These loans make up 15% of the company's loan portfolio, he says. "Severity is close to 100% for these loans in the event of default," he writes in the note.

Approximately 85% of TCF's home equity portfolio is from homes located in Minnesota, Illinois and Michigan -- states experiencing "meaningful increases" in unemployment and declines in home prices, factors which greatly impact a borrower's ability to make payments on mortgages, he writes.

Wunderlich's Reynolds expects more healthy institutions to pursue secondary common stock offerings in order to redeem the TARP funds, increase their tangible common equity ratios and "get the government out of their business," he writes.

"We believe investors would welcome the opportunity to move from the sidelines into the banking sector by participating in what will likely be significant common equity offerings," Reynolds wrote in the IberiaBank note.

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