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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.



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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."

The Crump deal followed an agreement to acquire

BankAtlantic Bancorp's

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main thrift subsidiary, for a premium of $301 million, to pick up 3.3 billion in deposits, spread across 78 South Florida branches, however, on Monday the South Florida Business Journal reported that the deal was permanently enjoined, because Delaware Court of Chancery Judge J. Travis Laster determined the sale of the thrift would violate the term of BankAtlantic's trust preferred securities.

Trust preferred shareholders sued to quash the deal, which would have brought them current on dividend payments in arrears, but would not have included the repayment of principal.

BankAtlantic's shares fell 15% on Monday to close at $2.80. BB&T's investors shrugged, sending the stock up 1% to close at $29.79.

Graseck said that the increased regulatory scrutiny being faced by acquirers -- including Capital One, which recently completed its purchase of ING Direct -- "cost saves from future M&A could be lower, reducing the number of acquisitions that could meet BBT management criteria of being accretive in year 1."

The Crump acquisition is expected to be completed during the first quarter, but the BankAtlantic deal "is likely to take a little longer," according to Graseck, "given pending litigation surrounding the acquisition and regulatory approval."

BB&T's shares returned 18% year-to-date, through Friday's close at $29.48, following a pullback of 2% in 2011. The shares trade for twice their tangible book value, and for 12 times the consensus 2012 EPS estimate of $2.49. The consensus 2013 EPS estimate is $2.95.

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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.