Regional Banks May Benefit From Equity Plan

Large regional banks are likely to get a boost from the Treasury's decision to pump $250 billion of badly needed equity into the troubled banking sector.

The federal government on Tuesday said it would allocate the funds from the $700 billion troubled asset relief program, or TARP, in a bid to improve investor confidence in the banking system by jump-starting the credit markets. Treasury Secretary Henry Paulson said early Tuesday that nine major financial institutions have already agreed to participate in the voluntary program, in which Treasury will buy preferred shares in the institutions.

"Although no definitive plans were announced regarding specific names in the regional space that will benefit, we believe it is just a matter of time before we see announcements benefiting the regionals in light of only 50% of the capital injection being used on the ... largest banks and fiduciary processors, so we expect the remainder will be applied to the regional bank space," writes Citigroup analysts Keith Horowitz and Greg Ketron. ...