Regions Financial: Bank Stock Loser

NEW YORK ( TheStreet) -- Regions Financial ( RF) was the loser among the largest U.S. banking names on Monday, with shares sliding 3% to close at $5.63.

The broad indexes were mixed, as Greece moved closer to finalizing its second European rescue package, following last week's debt swap, which has been considered a "credit event," triggering payouts on credit default swaps.

Meanwhile, China reported a $31.5 billion trade deficit in February, which was the country's largest since 1989.

The The KBW Bank Index ( I:BKX) declined 1% to close at $45.40, with 17 of the 24 index components showing declines for the session.

Regions' Financial's shares have now returned 31% year-to-date, following last year's 38% drop.

Unlike most of the large regional banks for which the Federal Reserve will announce stress test results this week, for Regions, investors are not seeking a return of capital. They are seeking the repayment of $3.5 billion in government bailout funds received during 2008 through the Troubled Assets Relief Program, or TARP, and are hoping for a minimal dilutive common equity raise in the process.

Part of the TARP repayment money will come from the sale by Regions of its Morgan Keegan subsidiary to Raymond James Financial ( RJF) for "total consideration of $1.18 billion," in a deal expected to close late this month.

KBW analyst Jefferson Harralson rates Regions Financial "Market Perform," with a $5.50 price target, and said on Monday that the company's "capital plan and the Fed's ultimate results will allow for RF to repay its $3.54B in outstanding TARP," but that the company "has a $1.6B cash shortfall as it looks to repay this amount while maintaining its desired two-year cash reserves."

The analyst expects Regions to quickly take advantage of the recent run-up in its shares, before the Fed's full detailed release of its stress test results, by raising $1 billion in common equity through a public offering, "with the remainder of the gap to be filled through the up-streaming of cash from the bank to the hold-co, or potentially through a small, temporary debt issuance."

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Regions Financial's stock trades for 0.8 times tangible book value, according to HighlineFI, and for 13 times the consensus 2012 EPS estimate of 45 cents, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 71 cents.

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

Shares of SunTrust ( STI) pulled back 2.5% to close at $22.43.

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The shares have now returned 31% year-to-date, following a 40% decline during 2011.

The Atlanta lender is currently paying a quarterly dividend of five cents, for a dividend yield of less than 1%.

In a report on Monday, KBW analysts highlighted four large banks expected to raise (or maintain) their dividends for their shares to yield of over 3%, but SunTrust was not included in that group.

Harralson rates SunTrust "Outperform," with a $27 price target, and forecasts the company will double its quarterly payout to 10 cents, for a dividend yield of 1.78%, based on Monday's closing price.

Harralson also forecasts that SunTrust will return an additional $187 million in capital to investors this year, through share buybacks.

The analyst said he expected SunTrust to pay out roughly 44% of its earnings during 2012, with "approximately 50% dividend (up to $0.10 from $0.05) and 50% buyback ($187M or 1.6% of shares)," which is in line with investors' expectations, and explains the stock's strong year-to-date performance.

SunTrust now trades for 0.9 times tangible book value and 13 times the consensus 2012 earnings estimate of $1.72. The 2013 EPS estimate is $2.66.

Interested in more SunTrust? See TheStreet Ratings' report card for this stock.


-- 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.