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Regions Financial


was the winner among large financial services companies on Friday, with shares rising over 2.4% to close at $7.18.

The broad equity indexes rose after a letter sent on Wednesday by

Federal Reserve

Chairman Ben Bernanke to House Committee on Oversight and Government Reform Committee chairman Darrell Issa (R., Calif) was released, raising hopes of additional economic stimulus by the central bank.

In response to a question from Issa on whether further quantitative easing could foster economic growth given the low interest rates across the entire Treasury yield curve, Bernanke wrote, "there is scope for further action," referencing the use of nontraditional policy tools, such as balance sheet actions, which would expand upon the Fed's simultaneous purchase of long-term securities and sale of short-term securities, to narrow the yield curve.

In answer to a question on whether it was premature to consider further action in light of the "long and variable lags," in the effect of policy actions, Bernanke said that because monetary policy actions operate with a lag, the stance of policy must necessarily be set in light of a forecast of the future performance of the economy.


KBW Bank Index


rose 1% to close at 47.17, with all but three of the 24 index components rounding out the week with gains.

Regions Financial's shares have now returned 67% year-to-date, following a 38% decline during 2011. The shares trade for nine times the consensus 2013 estimate of 80 cents a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 72 cents.

Regions went through a major transition during the second quarter, redeeming $3.5 billion in preferred stock held by the government for bailout assistance received in 2008 through the Troubled Assets Relief Program, after selling its Morgan Keegan subsidiary and raising $900 million in common equity during the first quarter.

The company reported second-quarter earnings available to common shareholders of $284 million, or 20 cents a share, increasing from $145 million, or 11 cents a share during the first quarter, and $55 million, or four cents a share, during the second quarter of 2011. The second-quarter earnings were reduced by $71 million, or five cents a share, from the accelerated discount accretion on the redeemed TARP preferred shares.

KBW analyst Jefferson Harralson on Wednesday reiterated his "market perform" rating for Regions, while raising his price target for the shares by a dollar to $8, saying that after a meeting with Regions CFO David Turner, he "came away feeling better about our current EPS expectations and RF's ability to more actively manage capital levels."

Harralson also said that the company will head into the Federal Reserve's annual stress tests next year "with a much greater position of strength," and that "we are modeling for the quarterly dividend to increase from $0.01 to $0.04 beginning 2Q13--thus we are expecting a $0.13 dividend payout next year," with "a $200 million buyback" of common shares.

The analyst also said that "RF will soon be back in the M&A game and could look to acquire banks, asset generators (i.e., non-banks) and sees opportunities in mortgage servicing as well."

KBW estimates that Regions will earn 76 cents a share for all of 2012, and matches the consensus with an EPS estimate of 80 cents for 2013.

Shares of

Capital One Financial


also rose over 2% to close at $56.87.

The shares have now returned 35% year-to-date, following a 2% decline during 2011, when the shares slipped during the second half of the year amid an extended regulatory approval process for the company's acquisition of ING Direct, which was completed in the first quarter, and the purchase of



$27.6 billion dollar domestic credit card portfolio, which was completed during the second quarter.

The shares trade for 1.6 times tangible book value, according to Thomson Reuters Bank Insight, and for eight times the consensus 2013 EPS estimate of $6.92. The consensus 2012 EPS estimate is $6.15.

Capital One reported second-quarter earnings of $92 million, or 16 cents a share, compared to a profit of $1.4 billion, or $2.72 a share, during the first quarter, and $911 million, or $1.97 a share, during the second quarter of 2011. The first-quarter results included a bargain purchase gain of $594 million, related to the ING Direct Acquisition.

The reduced second-quarter earnings included $60 million in civil penalties related to credit card settlements with the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, along with $150 million in refunds to the company's credit card customers. The two regulators had accused Capital One of failing to properly monitor third-party vendors selling add-on credit protection and credit monitoring services to credit card customers.

Capital One's second-quarter bottom line also included "an expense of $174 million to establish a finance charge and fee reserve for estimated uncollectible billed finance charges and fees and loan premium amortization expense of $63 million," related to the HSBC card purchase.

The second-quarter bottom line also reflected a provision for credit losses of $1.7 billion, which included the establishment of a $1.2 billion allowance for loan losses on the acquired HSBC loans. The provision for credit losses increased from $573 million in the first quarter, and a provision for loan and lease losses of $343 million in the second quarter of 2011.

On August 16. Capital One reported that its annualized rate of net charge-offs to average domestic card loans during July was 2.62%, declining from 3.41% in June, and 3.37% in July 2011. Early-stage delinquencies also declined, with loans past due 30 days or more making up 3.16% of the domestic card portfolio as of July 30, improving from 3.16% the previous month, and 3.37% a year earlier.

Capital One also reported improved credit quality in its $8.8 billion international credit card portfolio, with a net charge-off rate of 4.97% during July, improving from 5.16% in June, and 6.59% in July of last year. The 30+ days delinquency rate in the international credit card portfolio improved to 4.78% in July, from 4.84% the previous month, and 5.34% a year earlier.

Bank of America Merrill Lynch analyst Kenneth Bruce rates Capital One a "Buy," with a price objective of $63, saying after on Aug. 16 that that "July's data shows credit for COF's portfolio remains benign, with the overall credit backdrop still healthy, in our view."

The analyst added, however, that "going forward, as the

HSBC card credit mark is fully absorbed, loss rates are expected to increase again by Q4, with the company guiding a combined loss rate ~75bps higher than COF's standalone rate."

Interested in more on Capital One? See TheStreet Ratings' report card for this stock.


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Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.