Regions: Financial Winner

NEW YORK ( TheStreet) -- Regions Financial ( RF) was the winner among the largest U.S. financial names on Tuesday, with shares rising over 2% to close at $6.61.

The broad indexes ended mixed, after Federal Reserve Chairman Ben Bernanke warned about the "fiscal cliff," which is the set of tax increases and federal spending cuts mandated for 2013 under the August 2011 deal between President Obama and the Republican leadership of the House of Representatives, without further action from the President and Congress.

Speaking at the New York Economic Club, Bernanke warned that "the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery--indeed, by the reckoning of the Congressional Budget Office (CBO) and that of many outside observers, a fiscal shock of that size would send the economy toppling back into recession." Bernanke also said that early next year "it will be necessary to approve an increase in the federal debt limit to avoid any possibility of a catastrophic default on the nation's Treasury securities and other obligations."

The Dow Jones Industrial Average was dragged into the red by Hewlett-Packard ( HPQ), with shares dropping 12% to close at $11.71, after the computer hardware giant reported a net loss of $6.9 billion, or $3.49 a share for its fiscal fourth quarter ended Oct. 31, which included an $8.8 billion write-down of goodwill, related to former H-P CEO Leo Apotheker's disastrous decision in August 2011 to purchase Autonomy for $11 billion.

After taking over as CEO in in September 2010, Apotheker oversaw saw HP's launch of its new TouchPad, which featured WebOS, the operating system acquired by HP in July 2010, as part of its acquisition of Palm. After launching the TouchPad on July 1, 2011, HP just seven weeks later on Aug. 18, 2011 announced that HP would cancel the TouchPad and all other WebOS products, including smart phones, while considering a spin-off of the company's core PC business, in order to "sharpen HP's focus on its strategic priorities of cloud, solutions and software with an emphasis on enterprise, commercial and government markets."

That new focus for the company included the expensive acquisition of Autonomy.

Apotheker was dismissed one month later on Sept. 22, 2011, with Meg Whitman taking over as new CEO. After a complete review of HP's businesses and strategy, Whitman and the board of directors decided not to spin-off the PC business, underscoring just how dysfunctional the company's board was, before Whitman took over. HP announced the completion of the Autonomy acquisition on Oct. 3, 2011.

HP on Tuesday said that most of the $8.8 billion "impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation plc that occurred prior to HP's acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term," and that "the balance of the impairment charge is linked to the recent trading value of HP stock."

HP also said that "there will be no cash impact associated with the impairment charge." Excluding the Autonomy charge, the company reported fiscal fourth-quarter operating earnings of $2.3 billion, or $1.16 a share, compared to $2.4 billion, or $1.17 a share, a year earlier. For all of fiscal 2012, the company reported a net loss of $12.7 billion, or $6.41 a share, compared to earnings of $7.1 billion, or $3.32 a share, in fiscal 2011. Excluding one-time items, non-GAAP earnings for fiscal 2012 were $8.0 billion, or $4.05 a share, declining from $10.4 billion, or $4.88 a share, the previous year.

According to a Thomson Reuters transcript, Whitman said during HP's earnings call that "fiscal 2012 was the first year in a multi-year journey to turn HP around," and that the fiscal fourth quarter was "a landmark quarter for new product announcements including our first new line of multi-function printers in seven years, an impressive new line of Windows 8 PCs and the launch of the world's first tablet optimized for the enterprise."

Whitman also touted the company's strengths, saying "HP generated $4.1 billion in cash flow from operations on $30 billion in revenue for the fourth quarter, and $10.6 billion for fiscal 2012. To put that number in context, $10.6 billion is more than some of the most respected companies in the world such as Coca Cola, Disney, FedEx, McDonald's and Visa generated operating cash flow in their most recent fiscal years. HP used that cash to make significant progress on rebuilding our balance sheet, reducing our net debt by more than $3 billion in the fourth quarter."

Regarding the Autonomy mess, Whitman said that the "improprieties were discovered through an internal investigation after a senior member of Autonomy's leadership team came forward following the departure Autonomy founder Mike Lynch on May 23," and that the company had "SEC's Enforcement Division and the UK's Serious Fraud Office. We have requested that both agencies open criminal and civil investigations into this matter. In addition, HP intends to seek regress against various parties in the appropriate civil courts to recoup what we can for our shareholders."

Sterne Agee analyst Shaw Wu said that HP "posted a decent quarter and guided in-line for FY13," but that in addition to the Autonomy write-down, his firm was surprised by "a weak January quarter outlook implying a back-end loaded fiscal year which may raise concerns that guidance may need to be lowered in the future."

Turning back to the financials, the KBW Bank Index ( I:BKX) rose 1% to close at 48.56, after the Census Bureau announced that housing starts increased to a seasonally adjusted annual rate of 894,000 in October from a revised 863,000 in September. It also reported that building permits declined to an annual rate of 866,000 in October from a revised 890,000 in September.

On average, economists were expecting housing starts of 840,000 and building permits of 865,000 for last month, according to

Regions Financial

Regions Financial of Birmingham, Ala., has now seen its shares return 54% year-to-date, following last year's 38% decline.

The shares trade for 0.9 times their reported Sept. 30 tangible book value of $7.02, and for nine times the consensus 2013 earnings estimate of 77 cents, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is 82 cents.

Regions has gone through a major transition during 2012, with the sale of its Morgan Keegan subsidiary in the first quarter, followed by a common equity raise and the company's second-quarter redemption of preferred shares held by the government for assistance received during 2008 through the Troubled Assets Relief Program, or TARP.

The company currently pays a nominal quarterly dividend of a penny per common share, but investors are looking for a much more significant return of capital next year, especially since Regions reported a strong estimated Tier 1 common equity ratio of 10.5% as of Sept. 30.

Credit Suisse analyst Craig Siegenthaler last Wednesday estimated that following the next round of Federal Reserve stress tests in the first quarter, Regions will be approved to raise the quarterly dividend to four cents, and to buy back $249 million worth of shares during 2013."

RF Chart RF data by YCharts

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


-- 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 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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