Banks Gain on Jobs Data: Financial Winners

NEW YORK ( TheStreet) -- Regions Financial ( RF) was winner among the largest U.S. banks on Friday, with shares rising 4% to close at $7.59.

The Dow Jones Industrial Average rose 0.5% while the other broad indexes showed smaller gains after the Bureau of Labor Statistics said that nonfarm payrolls rose by 155,000 in December, down from an upwardly revised 161,000 in November. Economists, on average, were expecting nonfarm payrolls to increase by 150,000 in December, according to

Private nonfarm payrolls increased by 168,000 in December, declining from an upwardly revised 171,000 the previous month, but coming in significantly higher than the 148,000 was estimated by economists.

The national unemployment rate was unchanged at 7.8% after the November figure was revised from 7.7%.

The government's December employment figures were much lower than those reported by Automatic Data Processing on Thursday. ADP said that the U.S. economy added 215,000 nonfarm private sector jobs during December, UBS economist Maury Harris said in a note early Thursday that "the Dec estimates can be fluky," as the company's December employment estimates were significantly higher than the governments during the preceding two years. "If firms laid off fewer people in 2012 than in 2011 (and fewer in 2011 than 2010), their end-of-year reconciliations of their payroll records can result in a falsely high ADP estimate," he said.

Also on Friday, the Institute for Supply Management said that its ISM services index "registered 56.1 percent in December, 1.4 percentage points higher than the 54.7 percent registered in November. This indicates continued growth at a slightly faster rate in the non-manufacturing sector." Economists on average expected a reading of 54.2. The ISM Employment Index "increased by 6 percentage points to 56.3 percent, indicating growth in employment for the fifth consecutive month at a significantly faster rate."

The KBW Bank Index ( I:BKX) rose 2% to close at 53.73, with 23 of the 24 index components showing gains of at least 1%, except for New York Community Bancorp ( NYCB), which was down 1% to close at $13.34.

New York Community pays out 25 cents a share per quarter, for a dividend yield of 7.50%, which is among the highest yields on common shares in the industry. The company has maintained the dividend for 35 consecutive quarters, although the dividend payout is quite high, considering that the company's quarterly earnings have ranged between 27 cents and 30 cents a share over the past year.

Large-cap banks seeing shares rise 3% included Morgan Stanley ( MS), which closed at $20.19; Bank of New York Mellon ( BK), at $27.29; Comerica ( CMA), closing at $37.13; Northern Trust ( NTRS), at $53.47; SunTrust ( STI), at $29.42; and State Street ( STT), which closed at $49.39.

Shares of Citigroup ( C) rose 2.5% to close at $42.43, after Deutsche Bank analyst Matt O'Connor reiterated his "Buy" rating for the bank company and raised his price target for the shares to $46 from $40.

O'Connor said that his firm's "base case" estimates called for the U.S. economy to grow at an annual rate of 2.5% through 2015, and said that Citigroup "is best positioned for this," because of the company's leverage to an improved housing market, relatively low interest rate because of its international exposure, and also because of the company's strong and growing capital levels.

O'Connor and his colleague Dave Rochester took an unusual (for sell-side analysts) three-year view in recommending four bank stocks as good choices for investors through 2015.

Regions Financial

Shares of Regions Financial trade for 1.1 times their reported Sept. 30 tangible book value of $7.02, and for 9.7 times the consensus 2013 earnings estimate of 78 cents a share, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is 81 cents.

The shares are up 6% so far in 2013, after returning 67% during 2012, as the company underwent a significant transformation, selling its Morgan Keegan brokerage subsidiary to Raymond James Financial during the first quarter for $900 million, followed by a $930 million common equity raise and then the full redemption in April of the $3.5 billion in preferred shares held by the U.S. Treasury for bailout money provided through the Troubled Assets Relief Program in November 2008.

O'Connor on Friday reiterated his "Hold" rating for Regions, while raising his price target for the shares by 50 cents to $7.00, saying that his price target "assumes RF shares trade roughly in line with our target group multiple of 10.5x our 2014E." The analyst estimates that Regions will earn 74 cents a share this year, with EPS increasing to 75 cents in 2014 and 79 cents in 2015.

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.

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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.

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