NEW YORK (TheStreet) -- With the financial industry in recovery mode and the results of the stress tests due out in March, analysts predict that there will be an acceleration of bailout repayments the banks received through Troubled Assets Relief Program, or TARP.
Fifth Third Bancorp (FITB) announced on January 20 that it would repay TARP after a common equity raise and closed an offering at $14 a share on Tuesday, to raise $1.7 billion, raising another $1 billion through a senior debt offering with a 3.625% coupon, due in January 2016.
Stifel Nicolaus analyst Charles Nabhan told TheStreet that his firm's "model has a first quarter TARP repayment built in for [KeyCorp (KEY)] and SunTrust (STI) along with a capital raise." Nabhan said the companies were awaiting the results of the second round of government stress tests, which "should come at the beginning of March, and thereafter we expect a TARP repayment."
"These banks are more or less fully valued in our view. These are banks that have really struggled at one point in the cycle and they are still dealing with credit risk. Their earnings power isn't as substantial as banks like Wells Fargo (WFC) and United Bancorp (USB) but they are trading at same multiples," said Nabhan.After Regions Financial (RF) reported its fourth-quarter results, Christopher Mutascio - also of Stifel Nicolaus -- maintained his hold rating on the shares and said in a report that the company "remains a laggard in terms of credit and will likely be the last of our large cap banks to exit TARP." He expects "a 4Q11 repayment, with the company raising $1.75 billion in common equity in order to pay off the government's $3.5 billion TARP preferred investment" Brian Foran of Nomura Securities said that "as the banking system heals and as it starts to make its money back ultimately the goal of the Treasury is to have this be a temporary investment," and that "it seems like the main metric to repay TARP is to have a 9 percent tier one common" capital ratio. Since KeyCorp and SunTrust "are both at about 8.5 percent right now so the amount of money they need to raise will actually be potentially pretty small as a percentage of their TARP or percentage of the market cap," Foran said, but for Regions, the capital raise "could be a little bit bigger just because their tier one common ratio is still a little bit below 8 percent." Using Foran's guideline for a 9% Tier 1 common equity ratio, we have identified 10 more banks with capital ratios exceeding that level that were also profitable during the most recent reported quarter. Here are 10 holding companies meeting the criteria with the strongest Tier 1 common equity ratios:
TermsFor each of the 10 banks discussed on the following pages, we'll be looking at capital strength, earnings quality and asset quality. For an explanation of those terms you can click on the box below.
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