UPDATE: Bank Stress Test Keeps Analysts Wary
13 Febrero 2009 - 2:26PM
Noticias Dow Jones
The U.S. Treasury Department's plan for a stress test has
analysts voicing new wariness about investing in some banks.
Sanford C. Bernstein & Co. LLC analyst Kevin J. St. Pierre
wrote in a research report Friday that Fifth Third Bancorp (FITB)
is "essentially 'un-investable' at this point" because the outcome
of the test could mean that bank needs additional capital if the
economy worsens and loan losses double from Sanford Bernstein's own
projections.
Fifth Third isn't alone in the un-investable category. St.
Pierre's report shows that Regions Financial Corp. (RF) and
SunTrust Banks Inc. (STI) might also be on "quicksand" because they
might need to do capital raises that would hurt common
shareholders; KeyCorp (KEY) might be moving in the same
direction.
Representatives of Fifth Third, SunTrust and Regions declined to
comment on the Sanford Bernstein report.
KeyCorp wasn't immediately available for comment.
The stock market has been spooked by Treasury's stress test,
announced with little detail this week as part of the Obama
administration's Financial Stability Plan. The fear is that the
test will seal the fate of some investments in banks without any
advance notice to shareholders.
Stress tests often look at how different extreme economic
conditions will affect banks' loans and investments.
But without much detail from the Treasury, bankers and analysts
have been left to speculate about the nature of the test. In a
separate report, Sanford Bernstein called the test
"mysterious."
David Hendler of CreditSights Inc. and Jason Goldberg at
Barclays Capital are among the analysts who have issued reports
with the results of their stress tests.
Analysts are trying to find guidance by taking another look at
last year's bank failures and government-assisted acquisitions, and
loan-loss ratios under economic stress.
Goldberg, in a report published Wednesday, ranked banks by the
hit their capital could take if he applied markdowns to the loan
portfolio based on cumulative losses in Barclay's securitized
products groups, and the measures used by JPMorgan Chase & Co
(JPM) when it bought Washington Mutual Inc.; Wells Fargo & Co.
(WFC) in its acquisition of Wachovia Corp.; and PNC Financial
Services Group Inc. (PNC) when it took over National City Corp. He
divided those marks by the sum of third-quarter capital, preferred
stocks from government investments through the Capital Purchase
Program, and the loan-loss reserve.
Applied to Synovus Financial Corp. (SNV), the bank's capital
could be reduced by as much as $4.9 billion, a mark that would
exceed its entire capital base.
M&T Bank Corp. (MTB) and BB&T Corp. (BBT), two banks
many analysts consider well run, would be reduced by 91% and 90%,
respectively. Synovus declined to comment, M&T did not
immediately return phone calls, and BB&T did not immediately
comment.
M&T Bank Corp. and BB&T Corp. might illustrate just how
difficult it is for analysts to find "one-size-fits-all"
analysis.
Goldberg warned that the list is simply a quick cheat sheet. For
example, the analysis does not take the quality of a bank's
underwriting into consideration.
"We had to come up with something quickly" to help investors, he
said. "I'd hope Treasury is more thoughtful than that" when it
comes up with its own loan-loss analysis.
"Bank and thrift failures are a function of capital, liquidity
and regulatory risks. Some of the largest 'failures' of last year
were the result of a combination of these factors," said the
stress-test report by Sanford Bernstein.
Liquidity refers to money that banks need to fund their
day-to-day operations. Longer term, capital is needed to make
investments and, most importantly right now, to provide a cushion
for delinquent loans. Liquidity risk is largely mitigated at this
point - banks are liquid enough to be able to make the loans their
borrowers want. But capital and regulatory risk are "alive &
kicking," the report said.
While regulators put in place programs to prevent bank failures
through capital infusions, those programs could essentially wipe
out common equity at some banks, leading to "common equity
failures," Sanford Bernstein wrote.
Not all banks looked bad.
"Banks with higher capital levels are analyzable and
investable," St. Pierre said in an email to Dow Jones Newswires.
"I'd put Comerica Inc. (CMA), M&T Bank Corp. (MTB) and Capital
One Financial Corp. (COF) in that camp."
While Fifth Third declined to comment, it appears not to share
St. Pierre's concerns. The analyst said he recently met with the
management of Fifth Third and, "justifiable or not," St. Pierre
"noted a conspicuous absence of panic among the team, though with a
clear recognition of the headwinds they face."
Fifth Third took aggressive measures in the fourth quarter to
provide for future loan losses and isolate soured loans to be sold
off.
Chief Executive Kevin Kabat said in a recent interview with Dow
Jones Newswires that the Cincinnati company's core banking business
has been performing well despite the rise in delinquencies. He
pointed to rising earnings before taxes and the provision Fifth
Third put aside to cover current and future loan losses.
-By Matthias Rieker, Dow Jones Newswires; 201-938-5936;
matthias.rieker@dowjones.com