Banks Trail the Market: Financial Losers

NEW YORK ( TheStreet) -- Morgan Stanley ( MS) was the loser among the largest U.S. banks after the markets reopened Tuesday after the holiday break, with shares sliding 3% to close at $15.29.

While the broad indexes saw slight increases for the session, the KBW Bank Index ( I:BKX) pulled back 1% to close at 39.60, with 19 out of 24 index components seeing declines.

Economic news was mixed. The Conference Board said that its measure of consumer confidence for December was 64.5, exceeding a forecast of 58.3 among economists polled by Thomson Reuters and improving from 55.2 in November. Meanwhile, there was a report of a continued overall decline in U.S. housing prices, with the S&P/Case-Shiller 20-city index of national home prices falling to 1.2% in October, far exceeding the 0.4% decline expected by economists polled by Thomson Reuters.

Morgan Stanley has been one of the more volatile names among the big banks this year, and was included last week among TheStreet's 10 New York Bank Stocks With Most Upside for 2012. Based on a revised consensus price target of $22.36, analysts polled by FactSet see 42% upside for the shares in 2012.

Investors will see a messy fourth-quarter earnings report for the company, following Morgan Stanley's settlement with MBIA ( MBI) over claims related to credit default swaps on commercial mortgage-backed securities, which will result in a $1.8 billion pre-tax charge.

Richard Staite of Atlantic Equities estimated that Morgan Stanley would post a 51-cent fourth-quarter loss.

Interested in more on Morgan Stanley? See TheStreet Ratings' report card for this stock.

Shares of Bank of America ( BAC) declined over 2% to close at $5.48, after rising 8% last week.

The stock continues to be the most heavily discounted among the largest U.S. banks, with shares trading at just 0.4 times their Sept. 30 tangible book value of $13.20, according to SNL Financial.

Along with the regulatory onslaught being faced by all the major banks, investors are concerned about Bank of America's capital adequacy, as the company's Sept. 30 Tier 1 common equity ratio of 8.65% according to SNL, was the lowest among the "big four" U.S. banks.

Reuters reported on Friday that Bank of America was considering additional assets to boost regulatory Tier 1 capital. The recently announced that its moves to issue new common while retiring preferred shares and long-term debt would increase its Tier 1 capital by $3.9 billion.

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

Tuesday's winner among large U.S. banks was People's United Financial ( PBCT) of Bridgeport, Conn., with shares rising 1% to close at $12.84.

Based on a 16-cent quarterly payout, the shares have a dividend yield of 4.95%, which is a very aggressive payout for the company, which is trying to leverage excess capital.

People's United was included among TheStreet's 10 Large Banks With Very Strong Capital, with a Sept. 30 Tier 1 common equity ratio of 15.00%, according to SNL.

The shares look expensive in the current environment, trading for 1.5 times tangible book value and 15 times the consensus 2012 EPS estimate of 85 cents, among analysts polled by FactSet.

Interested in more on People's United Financial? See TheStreet Ratings' report card for this stock.

Shares of MetLife ( MET) rose only slightly to close at $31.20, even though the life insurer took a major step as part of its plan to lose its designation as a bank holding company, through its deal to sell most of its MetLife Bank subsidiary to General Electric ( GE) unit GE Capital.

While the deal certainly looks like a good one for both companies, since GE Capital is looking to expand its deposit base and MetLife's banking business provides such a small boost to its revenue, it appears that even after MetLife completes its exit from the banking business by selling its mortgage origination operations, the company will still face Federal Reserve scrutiny, as outlined in the regulators proposed rules to strengthen its oversight of large banks and other "systemically important" financial services companies.


-- 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.