Fifth Third: Bank Stock Winner

NEW YORK ( TheStreet) -- Fifth Third Bancorp ( FITB) was the winner on Tuesday among the largest U.S. banks, with shares rising over 1% to close at $17.03.

The broad indices all closed higher after yet another economic report showed a strengthening real estate recovery in the U.S. S&P Dow Jones Indices said Tuesday that the 10-city S&P/Case-Schiller Home Price index for February was up 8.6% from a year earlier, while the 20-city index was up 9.3% year over year. The 10- and 20-city indices showed respective increases in February from January of 0.4% and 0.3%.

"The 10- and 20-City Composites recorded their highest annual growth rates since May 2006," according to David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices. Blitzer said in a press release that "Phoenix, San Francisco, Las Vegas and Atlanta were the four cities with the highest year-over-year price increases."

Considering that Arizona, California, Nevada and Georgia were all grossly affected by the bursting of the real estate bubble in 2008, the data underscores just how dramatically home prices are recovering.

In a note to clients following the release of the S&P Case-Schiller data, Rafferty Capital analyst Richard Bove tied the rising home prices to bank stock valuations.

"The banks have marked down their holdings of repossessed real estate to levels that reflected housing prices at the bottom," Bove wrote, adding that "the banks are not allowed to mark to market these holdings as they do certain of their securities holdings or their fair valued debt."

This means that book value per share is understated for many banks.

Because construction lending is very difficult in the current regulatory climate and "the regulators also frown upon lending to low income households," Bove wrote that "the demand for the residential real estate assets being held by banks is growing. The foreclosed property division (OREO) is now a profit center."

According to Bove, the big regional banks and money center banks with OREO representing the largest percentage of common equity include Fifth Third Bancorp, at 1.92%; Wells Fargo ( WFC), at 1.59%; PNC Financial Services Group ( PNC), at 1.40%; and SunTrust ( STI), at 1.13%.

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