Excerpt from Bernanke speech to community bankers: ‘Community bankers live and work where they do business, and their institutions have deep roots, sometimes established over several generations. They know their customers and the local economy. Relationship banking is therefore at the core of community banking. The largest banks typically rely heavily on statistical models to assess borrowers’ capital, collateral, and capacity to repay, and those approaches can add value, but banks whose headquarters and key decision makers are hundreds or thousands of miles away inevitably lack the in-depth local knowledge that community banks use to assess character and conditions when making credit decisions. This advantage for community banks is fundamental to their effectiveness and cannot be matched by models or algorithms, no matter how sophisticated’….
2) Natl Bank of Greece (NBG) reports FY10 results better than expected; Reports FY10 net income, ex-items, of EUR485 mln vs. EUR436 mln consensus; rev -6% YoY to EUR4.76 bln vs. EUR 4.59 bln consensus. Provisions +31% YoY to EUR1.365 bln The provision coverage ratio (+90dpd) stands at 55%. Strong liquidity, with the Group loan-to-deposit ratio at 103%; Greece 94%. Net ECB funding reduced by -€2.9 bln vs. Q3.10…
3) Compass Point is raising their tgt on Key Corp (KEY) to $10 from $9; find the risk/reward in shares of KEY attractive. They expect TBV to increase to $9.62 by 4Q12 ($9.00 by FY11) primarily due to the benefit of improving credit quality and lower expenses. Additionally, due to their expectations for continued contraction in their loan portfolio through 3Q11, they expect KEY’s Tier 1 common ratio will grow to over 11% by year-end. Longer-term, they believe KEY’s earnings power is masked by an expense base that is too high given the size of their loan portfolio.
4) Compass Point reiterates their sell rating on SunTrust (STI) and increases their tgt to $24 from $21 after a less dilutive than expected common capital raise. STI raising $1 bln in common equity to repay TARP was significantly below their $2.0B estimate. In their opinion, STI received a very favorable review from the Federal Reserve compared to their expectations. As a result of the TARP repayment, they are increasing their 2011 EPS est from ($0.22) to $0.19 and their 2012 EPS est from $1.18 to $1.63 (cons: $1.03, $2.29). Clearly the less dilutive capital raise is a positive, yet they still believe shares of STI are overpriced given credit, revenue, and expense risks over the next 12 months.
5) Bank of America (BAC) participated in the Comprehensive Capital Analysis and Review (“CCAR”) conducted by the Federal Reserve. The CCAR is a supervisory exercise with a stated purpose of assessing the capital planning process of major U.S. bank holding companies, including any planned capital actions such as the payment of dividends on common stock. As part of the CCAR supervisory exercise, co submitted to the Federal Reserve a comprehensive capital plan on January 7, 2011. The Capital Plan addressed many matters including maintaining co’s current common dividend in the first and second quarters of 2011, as well as a modest increase in its common dividend starting in the second half of 2011. On March 18, 2011, the Federal Reserve indicated that it objected to the proposed increase in capital distributions for the second half of 2011. Additionally, the Federal Reserve informed co that it could resubmit a revised comprehensive capital plan. Co will continue to work with the Federal Reserve and intends to seek permission for a modest increase in its common dividend for the second half of 2011, through the submission of a revised comprehensive capital plan to the Federal Reserve
The S&P 500 Financial Index slipped below the 220 level as a slew of negative headlines hurt the group. The sector had been holding the 220 area but news from BAC and another round of litigation caused the sector to slip below to the 217 area. Off note, the XLF firmly held the 16 level showing that investors are not afraid to step in and buy dips at critical levels. In an 8-K filing, BAC addressed its discussions with the Fed and announced that the Fed has actually refused there request to pay a dividend in the second half of 2011. This caught the market by surprise as most expected this to be a done deal given the news from the other 17 institutions (MET remains quiet). This certainly raised the concern about the mortgage and foreclosure issues facing the institution. In addition, a WSJ story noted that Credit Unions were now pursing action to recoup losses on investments they made with banks. Just another headwind and headache for the industry but the group continues to weather the storm.
News of note:
If you enjoy the content at iBankCoin, please follow us on Twitter
