First Horizon: Basel III Loser

NEW YORK ( TheStreet) -- First Horizon National Corp. ( FHN) was the loser among large U.S. financial names on Friday, with shares sliding over 5% to close at $8.09.

The broad indexes saw 1% declines, as investors once again looked across the water for negative inspiration. After eurozone finance ministers approved a 100 billion euro bailout of Spain's banking sector, the Spanish region of Valencia requested its own bailout, after which yields on Spanish 10-year bonds soared 25 basis points to 7.19%.

Meanwhile, yields on 10-year U.S. Treasury paper declined by five basis points to 1.45%.

The KBW Bank Index ( I:BKX) declined 2% to close at 44.88, with all 24 index components showing declines.

First Horizon National reported a second-quarter net loss to common shareholders of $124.8 million, or 50 cents a share, matching the consensus estimate among analysts polled by Thomson Reuters, after previously disclosing $272 million in second-quarter charges "for mortgage repurchase and litigation matters," which "a negative impact on earnings per share of approximately $.67 for the quarter."

The company's shares sold off after CFO William Losch said during First Horizon's earnings conference call that bank's June 30 Tier 1 common equity ratio of 10.6% would decline by "about 240 basis points fully phased in or without any offsetting actions, putting it at a pro forma estimated 8.2% spot rate today."

The CFO added that "assuming planned improvements and run-off actions, we would expect a positive approximately 260 basis point impact to the pro forma estimated 8.2% or a theoretical Tier 1 common ratio of over 10% under Basel III."

The company repurchased $36.9 million worth of common shares during the second quarter now has $74.5 million authorized for repurchases, out of its $200 million buyback program.

Deutsche Bank analyst Matt O'Connor rates First Horizon a "Hold," with a price target of $9.50, and after the earnings announcement said that aside from the mortgage repurchase provision, and said Friday that aside from the mortgage repurchase provision, "underlying trends were sluggish-- net II was flattish after a big decline in 1Q12 q/q and fees were weak."

O'Connor also said that the company's estimate of the hit to its Tier 1 common equity ratio from regulators' proposed capital rules, "combined with continued uncertainty over mortgage putbacks and sluggish underlying earnings may cause share buybacks to be less than expected over the next 1-2 years."

First Horizon's shares have now returned 1% year-to-date, following a 32% decline during 2011.

FHN Chart FHN data by YCharts

The shares trade just below their reported June 30 tangible book value of $8.28, and for 9.5 times the consensus 2013 earnings estimate of 90 cents a share. The consensus 2012 EPS estimate is six cents.

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

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

>Contact by Email.

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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