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10 Regional Banks: Fourth-Quarter Earnings Preview (Update 4)

Updated with FBR's Thursday comments on First Niagara's sale of 37 branches to KeyCorp, additional information on Regions Financial's late Wednesday announcement of a deal to sell Morgan Keegan to Raymond James Financial and earnings pre-announcement, analyst reaction, and market close information.

NEW YORK ( TheStreet) -- Analysts have subdued expectations for regional banks reporting fourth-quarter results over the next two weeks, and also see higher stock price upside for the largest national players.

Starting with the 24 components of KBW Bank Index (I:BKX), we narrowed down our list of 10 regional banks to the ones with the most upside potential, based on Friday's market data and consensus price targets among analysts polled by Thomson Reuters.

Goldman Sachs analyst Christopher Neczypor said in his firm's regional banks' earnings preview on Monday said that "with regional bank stocks up 20% in the past six weeks," some investors were skeptical, pointing to "a similar backdrop this time last year - a 23% rise in stocks, which ultimately proved unsustainable - while others suggest fundamentals actually support the change in value this time."

In his discussion on what has changed for regional banks from a year ago, Neczypor made several points of great importance to investors, saying that "bank stocks are 20%-plus lower, Street estimates have decreased 15%, there is more clarity on capital, and banks are growing loans now."

Analysts expect to see a sequential earnings decline for many banks, with the prolonged low-rate environment squeezing net interest margins, and a smaller release of loan loss reserves providing a reduced boost to bottom-line results.

Eight of the 10 featured here trade at higher multiples to consensus forward earnings than the "big four" U.S. banks, reflecting in part the regulatory overhang faced by the biggest banks from the enhanced capital requirements for systemically important financial holding companies, which still haven't been finalized by the Federal Reserve, as well as the Volcker Rule, which will ban "proprietary trading" and have the greatest effect on holding companies with significant brokerage and investment banking operations.

Here's how the stock price multiples stack up for the big four, as of Friday's market close:
  • Shares of Bank of America (BAC - Get Report) closed at $6.18 Friday, declining 57% from a year earlier. The shares traded for 6.9 times the consensus 2012 EPS estimate of 91 cents and for 0.5 times tangible book value, according to HighlineFI.
  • JPMorgan Chase (JPM - Get Report) closed at $35.36 Friday, for a one-year decline of 18%. The shares traded for 7.4 times the consensus 2012 EPS estimate of $4.81, and 1.2 times tangible book value.
  • Shares of Wells Fargo (WFC - Get Report), closed at $28.94 Friday, sliding 9% from a year earlier. The shares traded for nine times the consensus 2012 EPS estimate of $3.21 and 1.9 times tangible book value.
  • Citigroup (C - Get Report) closed at $28.55, declining 42% from a year earlier. The shares traded for 6.6 times the consensus 2012 EPS estimate of $4.32, and for 0.6 times tangible book value.

Goldman Sachs analyst Richard Ramsden said on Monday that his firm's top banking picks "remain WFC and JPM, while clarity around BAC's capital base by the Fed should allow for outperformance from current levels." Ramsden also expects that "all banks will pass the stress test, which will serve as a catalyst for the group."

Here are TheStreet's fourth-quarter earnings previews for our select group of large regional banks. The list is sorted by ascending upside potential, based on analysts' consensus 12-month price targets.
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