Fox-Pitt Kelton Upgrades U.S. Banks to Marketweight After 5-year Underweight
April 28 2009 - 10:59PM
PR Newswire (US)
LONDON, NEW YORK and CHICAGO, April 28 /PRNewswire/ -- Fox-Pitt
Kelton Cochran Caronia Waller ("FPKCCW"), a leading global
investment bank specializing in the financial services sector,
announced today that we are upgrading our group rating on U.S.
Banks to Marketweight from the Underweight rating which had been in
place since April 2004. This move is predicated on certain criteria
for credit (loan loss reserves and non-performing assets ("NPAs"),
valuation and capital. Bank stocks historically have rallied off
down-cycle lows about two or three quarters before NPAs peak, and
we now believe they will peak near year-end 2009. Risk/Reward More
In Balance. These criteria had not been met when banks were at
their lows in early March. While banks have rebounded, the group
remains at historically low valuations, 1.26x tangible book vs. a
historical mean of 2.34x. Intersecting the valuation with the key
criteria, we believe risk/reward has become materially better,
albeit not attractive enough for aggressive buying. It appears to
us that the market is starting to show a willingness to look beyond
the deepening cyclical problems, just as it did in the Fall of
1990. Upgrading Two Names and Bumping Two Targets. Today, we are
upgrading Fifth Third (to In Line from Underperform) and Private
Bancorp (to In Line from Underperform). Our universe now has 16
Outperforms, 39 In Lines, and 6 Underperforms. We are also bumping
targets on CYN to $36 (1.5x projected TBV) from $27 and RNST to $13
(1.3x projected TBV) from $12. Our top picks in the universe are
FHN, BAC, WFC and PRSP. What Could the Government Do? Our
stress-tests are based on what we believe are logical translations
of: (a) the adverse-case economy to loan-loss rates by category;
(b) minimum standards of capital adequacy (i.e. 6% Tier 1) at the
point of stress; (c) our earnings projections; and (d) our
expectations of increase in risk-weighted assets ("RWAs"). However,
regulators might be looking for: (i) higher than minimum capital
adequacy even at the point of maximum stress; and (ii) an increase
in banks' lending capacity. Therefore, we conduct sensitivity
analyses on our stress tests as we fully recognize that the
regulators' actual findings could deviate from ours. We Believe It
Is About Converts, NOT Direct Common Injections Today. Since the
stress tests are a wholly speculative exercise, which will bear no
resemblance to the actual outcome at any given bank, it makes no
sense to dilute common shareholders immediately. Thus, we believe
the U.S. government will do the more sensible thing and use
securities that will convert into common on an as-needed basis. If
so, shareholders will only end up being diluted by the exact
amounts necessary, and at which times actual facts dictate it.
Stress-Test Sensitivity. If we increase minimum required Tier 1
ratio to 8%, increase our estimated RWAs by 10% and reduce our
earnings projections by 5% - 20%, additional banks that appear to
have a lower common equity cushion include RF, PNC, STI, WFC, HBAN,
MI, ZION, MTB, SNV and CPF. To view this report, please click on
the link below. If you have any trouble viewing the document,
please contact
http://www.fpk.com/tg_res/28042009USBanksUpgrading.pdf About
Fox-Pitt Kelton Cochran Caronia Waller Founded in 1971, with
offices in New York, Chicago, Boston, Hartford, San Francisco,
London, Hong Kong and Tokyo, FPKCCW is one of the leading global
specialist investment banks focused exclusively on the financial
services sector. Fox-Pitt, Kelton and Cochran Caronia Waller closed
on August 31, 2007 their previously announced merger. FPKCCW's
reputation has been built around its equity research team which has
consistently been recognized by institutional investors for its
quality and independence. FPKCCW is also a leading underwriter of
equity securities and actively serves as a strategic advisor
providing advice on mergers & acquisitions, corporate
restructurings and equity capital market transactions for banks,
insurance companies and other financial services companies around
the world. FPKCCW has been consistently ranked among the leaders in
insurance investment banking transactions. CRD number 10485 For
further information, please visit our website at www.fpk.com.
DATASOURCE: Fox-Pitt Kelton Cochran Caronia Waller CONTACT: Tiffany
Gosnell of FPKCCW, +1-312-425-4074, Web Site: http://www.ccwco.com/
http://www.fpk.com/
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