Bank of New York: Buyback Winner

NEW YORK ( TheStreet) -- Bank of New York Mellon ( BK) was the big winner among the largest U.S. banking names on Thursday, with shares rising 5% to close at $24.28.

The U.S. Labor Department reported that jobless claims for the weekend ended March 10 fell to a seasonally adjusted 351,000, declining by 14,000 from the previous week. The Labor Department also reported that the total number of people claiming unemployment benefits in all of the department's programs for the weekend ended Feb. 25 was 7,424,040, increasing by 36,392 from the previous week.

The broad indexes saw moderate gains, while banks continued to roar ahead as investors digested the mostly positive results in the Federal Reserve's annual stress test announcement on Tuesday. The KBW Bank Index ( I:BKX) rose 3% to close at 49.41, with all 24 index components rising for the session.

Bank of New York Mellon's shares have now risen 23% year-to-date, following a 33% drop during 2011.

The large bank holding companies subject to the Federal Reserve's 2012 capital were stress-tested under a severe economic scenario that included real U.S.

In order to pass the stress tests, the results had to show that the group of 19's estimated Tier 1 common equity ratios would remain over 5% under the adverse economic scenario.

In order to have their capital plans approved, the companies' estimated Tier 1 capital ratios at the end of 2013 would have to be above 5%, "with all proposed capital actions through Q4 2013."

The Federal Reserve announced on Tuesday that under the severe economic scenario, Bank of New York Mellon's Tier 1 common equity ratio would be a very strong 13.3% -- reflecting the company's capital strength, but also its limited loan exposure -- and that if the company were to follow through with its plans to return capital to investor's its Tier 1 common equity ratio would decline only slightly, to 13.0% at the end of 2013.

Bank of New York Mellon announced on Tuesday the Fed didn't object to its plans to "repurchase of up to $1.16 billion of outstanding common stock and the continuation of its 13 cents per quarter dividend over the next 12 months."

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Bank of New York Mellon's shares trade for 2.6 times the company's reported tangible book value of $8.91 a share, as of Dec. 30, and for 11 times the consensus 2012 earnings estimate of $2.24 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $2.46.

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

Shares of Regions Financial ( RF) rose over 4% on Thursday, to close at $6.44.

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The shares have now returned 50%% year-to-date, following last year's 38% decline.

Regions owes $3.5 billion in federal bailout funds received through the Troubled Assets Relief Program, or TARP. The Federal Reserve approved the company's capital plan, which includes TARP repayment, and estimated that under the adverse economic scenario used in the stress tests, the Birmingham, Ala., lender's Tier 1 common equity ratio would be 6.6%, under the plan.

Regions has a pending deal to sell its Morgan Keegan brokerage subsidiary to Raymond James Financial ( RJF) for "total consideration of $1.18 billion," which is expected to close late this month.

Regions on Tuesday commenced a $900 million common stock offering, and said that including the offering's net proceeds of $875 million, the money from the Morgan Keegan sale and full redemption of TARP preferred shares held by the U.S Treasury, the company's Tier 1 common equity ratio its Tier 1 common equity ratio, based on Dec. 30 numbers, would be a strong 9.51%.

Regions also said it had paid $593 million in dividends on the TARP preferred shares.

The shares trade for just over tangible book value, according to HighlineFI, and for 14.5 times the consensus 2012 EPS estimate of 45 cents. The 2013 EPS estimate is 71 cents.

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

Despite having its capital plan rejected by the Federal Reserve on Tuesday, Citigroup ( C) saw its shares rise 3% on Thursday, to close at $36.27. The shares have risen 7% over the past week, and have now returned 38% year-to-date.

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While the Federal Reserve estimated that Citigroup's Tier 1 common equity ratio would be 5.9% under the adverse economic scenario, if the company were to carry out its plans for an increased dividend payout and share buybacks, the estimated Tier 1 ratio at the end of 2013 would be 4.9%.

So Citi's capital plan failed the stress tests, and the shares were down 3% in early trading on Wednesday, to $35.42.

Citigroup responded by saying it would "submit a revised Capital Plan to the Federal Reserve later this year, as required by the applicable regulations," and also that the "Federal Reserve also advised that it has no objection to Citi redeeming certain series of outstanding trust preferred securities, as Citi proposed in its Capital Plan."

Credit Suisse analyst Moshe Orenbuch on Wednesday called the Fed's rejection of Citigroup's capital plan a "surprise," and said "the loss estimates appear high versus to peers and high relative to the company's actual historical loss experience."

Also on Wednesday, KBW analyst David Konrad said that the 1% decline in the Fed's estimated Tier 1 common equity ratio for Citi under the company's submitted capital plan indicates that "Citi may have submitted an aggressive capital deployment plan," and that "as a result, the submission of a revised capital plan could still result in meaningful capital deployment."

Citigroup's shares are still heavily discounted, trading for just 0.7 times tangible book value, and for nine times the consensus 2012 EPS estimate of $3.97. The consensus 2013 EPS estimate is $4.79.

Obviously, some investors smell a bargain.

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

Bank of America ( BAC) saw its remarkable run continue, with shares rising over 4% 4.5% on Thursday to close at $9.24.

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Like Citigroup, Bank of America trades at a heavily discounted 0.7 times tangible book value, but its price-to-earnings multiples are much higher. The shares trade for 13 times the consensus 2012 EPS estimate of 69 cents. The 2013 EPS estimate is $1.19.

Bank of America didn't request Fed permission to increase its quarterly dividend of a penny a share, or to repurchase shares this year, avoiding the company's misstep last year, when its capital return plan was rejected by the regulator.

The Federal Reserve estimated that under its adverse economic scenario -- with the company's mortgage putback exposure also being stress tested -- Bank of America's Tier 1 common equity ratio would be 5.7%, rising to 59% at the end of 2013, even with a two-year pre-tax net loss of $51.3, under the harsh economic scenario.

Out of 31 analysts covering Bank of America, nine rate the shares a buy, 21 have neutral ratings, and just one analyst rates the shares "Underperform." The mean price target is $9.08.

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

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-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

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 TheStreet.com 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.

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