SunTrust's Coming Capital Return
SunTrust's shares have now returned 52% year-to-date, after declining 40% last year. The shares trade just above times their reported Sept. 30 tangible book value of $25.72, and for 10 times the consensus 2013 earnings estimate of $2.71 a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $3.04. The Atlanta lender during the third quarter made several moves to shore up its balance sheet ahead of the next round of Federal Reserve stress tests early this year, including the sale of its stake of Coca-Cola (KO) shares, resulting in a pre-tax gain of $1.9 billion. The company also reported a $371 million provision for mortgage repurchase claims during the third quarter, saying that the move had ""increased the mortgage repurchase reserve to a level that is expected to cover the estimated losses on loans sold to Government Sponsored Enterprises (GSEs) prior to 2009." Other third-quarter balance sheet moves included "the sale of $0.5 billion of nonperforming mortgage and commercial real estate loans," along with ""the movement of $1.4 billion of delinquent and current student loans and $0.5 billion of delinquent Ginnie Mae loans to loans held for sale." SunTrust's estimated Sept. 30 Basel I Tier 1 common equity ratio was 9.8%, increasing from 9.4% the previous quarter. The Federal Reserve released its 2013 stress test scenarios on Nov. 16. Bank of America Merrill Lynch analyst Erika Penala on Nov. 26 estimated that SunTrust in March would be approved to increase its quarterly dividend from a nickel a share to 15 cents, while also repurchasing $565 million in common shares during 2013. STI data by YCharts
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Selling Vantiv to Reward Investors
Shares of Fifth Third Bancorp of Cincinnati pulled back nearly 2% to close at $14.41. The shares have now returned 15% year-to-date, following an 11% decline during 2011. The shares trade for 1.2 times their reported Sept. 30 tangible book value of $12.12, and for nine times the consensus 2013 EPS estimate of $1.58. The consensus 2014 EPS estimate is $1.66. Based on a quarterly payout of 10 cents, the shares have a dividend yield of 2.78%. Fifth Third announced late on Friday that it would sell a portion of its stake in Vantiv (VNTV - Get Report), the company's former payment processing subsidiary, which was spun-off through a public offering in March. The company said it was beginning "the process of monetizing the remaining portion of Fifth Third's stake in Vantiv in a considered, orderly fashion over time, and to generate proceeds for Fifth Third's general corporate purposes, potentially including actions to optimize its balance sheet and liability costs and/or repurchase Fifth Third common stock. Fifth Third was aiming to sell 10,550,000 of its 84 million Vantiv shares, with underwriters having the option to purchase an additional 1,050,000 shares. Wells Fargo analyst Matthew Burnell on Monday wrote in a report that "assuming a 5% offering discount would imply a potential gain on disposition of roughly [$100 million] net of tax from this transaction," implying a potential for Fifth Third to buy back about seven million common shares before the Federal Reserve stress tests in March. The analyst estimated that a buyback in this amount "could drive $0.02 of EPS accretion in 2013." Burnell rates Fifth Third "Market Perform," with a valuation range of $16 to $17 a share. The analyst is in front of the consensus, estimating that Fifth Third will earn $1.65 a share in 2013, followed by EPS of $1.70 in 2014. FITB data by YCharts
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