This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Regionals Must Deliver Better Balance Sheets

"We believe investor focus will start to shift from credit quality and capital (which dominated the outcome of '08/'09 results) to long-term earnings drivers," including loan growth, net interest margin, fee income and expenses, writes Credit Suisse analyst Craig Siegenthaler in a research note to clients. "This could start to differentiate the banks that can post stronger loan growth (or lack of deterioration) and [net interest margin] improvement."

From a bottomline perspective, performance will still be weak across the majority of regional banks, however. According to Thomson Reuters, the 11 regional banks listed in the S&P 500 are expected to post an aggregate loss of $972 million vs. a loss of $7.56 billion in the same period a year earlier, even with expected earnings growth of 205% in the overall financial sector, Thomson Reuters says.

"Bottom line results will be poor given expectations for slowing pre-provision profits, including lower earning asset levels, seasonally weak fee income, and high expense levels. We expect about half of our coverage universe to post an operating loss in the quarter, with the remaining banks posting modestly improving profits," according to Todd Hagerman, an analyst at Collins Stewart.

Hagerman covers 18 large and mid-size banking companies. Among the larger regional names, Hagerman predicts further upside in SunTrust, Fifth Third and Regions, all rated at buys, but says Zions Bancorp (ZION), Synovus (SNV) and KeyCorp are beginning to look expensive and rated at hold.

Overall loan demand is also expected to continue be weak combined with declining loan balances as banks work to shed troubled loans and shore up their willingness to lend out again.

Still Hagerman believes that a credit inflection point occurred during the first quarter as reserve builds "will likely diminish significantly and charge-offs are likely to decline."

Outside of credit, another bright spot could be expansion of net interest margins as banks continue to shift deposits away from higher priced CDs and other interest-bearing accounts and reap benefits from lower borrowing costs.

Goldman Sachs upgraded KeyCorp to a buy rating on Wednesday saying the company is most likely to benefit from a net interest margin tailwind. Goldman analysts note that KeyCorp, for example, has the "biggest and most expensive CD book with about two-thirds of it re-pricing this year," followed by Hudson City (HCBK) and Huntington Bancshares (HBAN).
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BBT $34.00 0.00%
FITB $17.49 0.00%
KEY $11.87 0.00%
RF $9.04 0.00%
STI $40.36 0.00%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs