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BB&T Earnings Will Stand Out: Morgan Stanley (Update 1)

Updated with news that BB&T's deal to acquire BankAtlantic Bancorp's thrift subsidiary was barred by a judge for violating the terms of BankAtlantic's trust preferred securities.

NEW YORK ( TheStreet) -- BB&T's (BBT - Get Report) aggressive moves to trim nonperforming assets and its market share gains should help the bank achieve "better EPS growth than peers," according to Morgan Stanley analyst Betsy Graseck.

The analyst on Monday reiterated her "overweight" rating for the Winston-Salem, N.C., lender, while raising her price target for the shares to $33 from $30, raising her 2012 earnings estimate to $2.66 a share from $2.42, and her 2013 EPS estimate to $3.07 from $2.78.

BB&T CEO Kelly S. King

In addition to the regulatory onslaught on various sources of fee income, banks are facing continued pressure to their net interest margins -- the difference between a bank's average yield on loans and investments and its average cost for deposits and borrowings -- in the prolonged low-rate environment, with overall loan demand still weak. Graseck expects BB&T to buck this trend, through the retirement of $3.1 billion in trust-preferred securities, "with 4.1% all-in cost of funding (including hedges) to be called late in 2012 once the Federal Reserve issues final rules on the Collins Amendment which excludes TRUPS from Basel capital ratios."

BB&T's fourth-quarter net interest margin was a solid tax-adjusted 4.02%, declining slightly from 4.09% in the third quarter, and 4.04% in the fourth quarter of 2010. Graseck expects the company's net interest margin to decline to 3.83% in the fourth quarter of 2012, but also said the trust-preferred repayment would "add 11-15bps" to the company's 2013 net interest margin.

Grasek said that BB&T is "about a year ahead of peers in working down" nonperforming loans and costly repossessed real estate (OREO), with significant cost savings ahead, as she expects "OREO costs to decline by $327mn in 2012, $136mn in 2013, and $69mn in 2014," driving "$0.46, $0.20 and $0.10 in EPS in 2012e, 2013e, and 2014e equating to 57%, 48% and 39% of EPS growth in each of those years."

BB&T on Feb. 3 agreed to purchase the life and P&C insurance operating divisions of Roseland, N.J.-based Crump Group from J.C. Flowers for $570 million in cash, saying the deal would "add approximately $300 million in annual revenue."

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