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Trust Banks Attractive After Repaying TARP

State Street, Northern Trust and Bank of New York Mellon have better earnings potential and fewer credit issues than commercial banks, according to Sanford Bernstein.
Author:

State Street

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,

Northern Trust

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and

Bank of New York Mellon

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, three banks given the green light to begin repaying federal bailout money Tuesday, have better earnings potential and fewer credit issues than commercial banks, according to a Sanford Bernstein research note.

Sanford Bernstein initiated coverage on the three trust banks, giving an outperform rating to State Street and a market perform to Northern Trust and Bank of New York Mellon. The trio were among the 10

blessed by the Treasury Department to begin repaying government investments made through the Troubled Asset Relief Program.

"Despite lingering issues around its securities portfolios, we think State Street offers the best blend of leverage to a capital markets recovery and a fixed income up-cycle, above-average revenue growth potential, and solid operating leverage, at an attractive valuation. We also think the firm has an identifiable opportunity to restore confidence with investors," the report states.

Other financial companies allowed to repay TARP include

American Express

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,

Capital One

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,

JPMorgan Chase

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,

Goldman Sachs

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,

BB& T Corp.

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,

US Bancorp

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and

Morgan Stanley

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.

State Street shares were adding 1.8% in recent trading, while Northern Trust was rising 2.6% and Bank of New York Mellon was up fractionally.