The Bombshell Brown/Vitter BillSenators Sherrod Brown (D., Ohio) and David Vitter (R., La.) on Wednesday proposed the Terminating Bailouts for Taxpayer Fairness Act, which require "megabanks" with total assets of over $500 billion to raise capital levels to at least 15% of total assets. Under the proposal, "mid-sized and regional banks would be required to hold eight percent in capital to cover their assets." The senators said in a press release that "Five years ago, risky practices at Wall Street banks puts our economy on the brink of collapse - and jeopardized the savings and pensions of millions of Americans. Today, the nation's four largest banks are nearly $2 trillion larger than they were then - aided by an implicit government guarantee awarded by virtue of their 'too big to fail' status." "Our bill will ensure a level playing field for all financial institutions by ending the subsidy for Wall Street megabanks and requiring banks to have adequate capital to back up their liabilities," the senators said. The TBTF bill's capital requirements would be much higher than the Basel III capital requirements for the largest banks, which will be fully phased in by January 2019, under the Federal Reserve's proposed rules. The Fed's proposed rules require large banks to have Tier 1 common equity ratios of 7%, plus additional requirements for "systemically important financial institutions," or SIFIs. Based on determinations by the Basel Committee, the additional capital surcharges for Citigroup ( C) and JPMorgan Chase ( JPM) are 2.5%, so each of these banks has a fully phased-in minimum Basel III Tier 1 common equity ratio requirement of 9.5%.
Four Bank Stock Picks from OppenheimerIn a report on large commercial banks late on Tuesday, Oppenheimer analyst Chris Kotowski said that "operating returns are still sub-par" for the banking industry, but also offered hope for a continued recovery for bank stock prices, since "it is rising returns rather than high returns that drive bank stocks." When credit quality is "good and stable," banks can improve their earnings performance "by pulling on some combination of four key levers: pricing, underwriting standards, delivery costs and equity returns," Kotowski wrote. He added that "banks have been pulling the pricing and underwriting levers aggressively since the financial crisis hit, resulting in flattish loan volumes and flattish net interest income and low and still declining
- Citigroup. The shares closed at $47.12 Wednesday, trading for 8.9 times the consensus 2014 earnings estimate of $5.32 a share, among analysts polled by Thomson Reuters. Oppenheimer's price target for Citi's shares is $57.
- Capital One (COF). The shares closed at $57.06, trading for 8.6 times the consensus 2014 EPS estimate of $6.67. Oppenheimer's price target for Capital One is $69.00.
- JPMorgan Chase. The shares closed at $48.73, trading for 8.2 times the consensus 2014 EPS estimate of $5.93. Oppenheimer's price target for the shares is $66.
- Morgan Stanley (MS) . The shares closed at $21.45, trading for 8.5 times the consensus 2014 EPS estimate of $2.53. Oppenheimer's price target for Morgan Stanley is $27.00
RegionsRegions Financial's shares were up again on Wednesday, following a 4% gain on Tuesday, after the Birmingham, Ala., lender reported first-quarter net income available to common shareholders of $327 million, or 23 cents a share, increasing from $261 million, or 18 cents a share, in the fourth quarter, and $145 million, or 11 cents a share, in the first quarter of 2012. The year-over-year earnings improvement mainly reflected the bank's continued improvement in credit quality. The provision for loan losses declined to $10 million in the first quarter from $37 million the previous quarter and $117 million a year earlier. Noninterest expense totaled $842 million in the first quarter, declining from $902 million in the fourth quarter and $913 million in the first quarter of 2012. According to the company, professional and legal expenses returned to "a more normalized level" of $31 million in the first quarter from $15 million in the fourth quarter, when Regions "benefitted from $20 million in lower legal reserves." The main factor in the sequential lowering of expenses was $42 million in costs in the fourth quarter to terminate a Real Estate Investment Trust investment. Regions continued to benefit from the housing market recovery, with expenses to maintain repossessed real estate totaling just $2 million in the first quarter, declining from $6 million the previous quarter and $23 million a year earlier. Another highlight for Regions in the First quarter was the widening of its net interest margin, running counter to the trend for most large banks in the prolonged low-rate environment. The bank's first-quarter net interest margin expanded to 3.13% in the first quarter from 3.1% in the fourth quarter and 3.09% in the first quarter of 2012.
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. Follow @PhilipvanDoorn