First Niagara: Branch Sale Winner

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Thursday's loser among large-cap U.S. banks was Regions Financial (RF), with shares declining over 2% to close at $4.69.

The Birmingham, Ala., lender announced late Wednesday that it had agreed to sell Morgan Keegan to Raymond James Financial (RJF) for $930 million. Regions had been peddling its mortgage subsidiary since June, initially seeking a price of about $1 billion. Before the sale is completed, Raymond James will upstream a $250 million dividend to Regions.

Regions also announced it would take a fourth-quarter goodwill impairment charge ranging between $575 million and $745 million, and said it expected to report a fourth-quarter net loss to common shareholders "in a range of $432 million to $633 million or $(0.34) per common share to $(0.50) per common share," but that "net income from Continuing Operations without the goodwill impairment charge (non-GAAP) is expected to be in a range of $88 million to $119 million or $0.07 to $0.09 per common share."

Regions owes $3.5 billion in federal bailout funds received through the Troubled Assets Relief Program, or TARP.

FBR analyst Scott Valentin on Thursday reiterated his "Market Perform" rating for Regions, and said that "while the $1.18 billion valuation is slightly above our expectations, the net benefit to capital ratios was less than expected," and that through the Morgan Keegan sale, Regions Financial's "Pro forma 3Q11 Tier-1 common equity ratio increases 9 bps, to 8.25%, and Tier-1 capital risked-based ratio increases 13 bps, to 12.97%."

Deutsche Bank analyst Matt O'Connor said that the sale of Morgan Keegan "continues to build the credibility of [Regions Financial's management] and we view it as another meaningful step in the right direction." O'Connor added that Regions can now focus on "fundamentals - with the key being improvement in credit quality."

O'Connor reiterated his "Buy" rating for Regions, with a price target of $5.00, saying that "While RF shares have rallied sharply (up 26% in the last 3 weeks or so)," the shares still had upside "given an attractive valuation, good underlying earnings power and a lot of franchise value."

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