Barclays on Large-Cap & Mid-Cap Banks: 3Q11 Asset Quality Almanac: Improvement Continues, But the Pace is Slowing
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Rating Summary:
10 Buy, 14 Hold, 3 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 21 | Down: 24 | New: 29
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Barclays on Large-Cap & Mid-Cap Banks: 3Q11 Asset Quality Almanac: Improvement Continues, But the Pace is Slowing
Barclays analyst, Jason M. Goldberg, said, "While loan losses remain elevated, credit trends continued to improve in 3Q11 in keeping with our belief that 3Q09 will prove the peak for losses this cycle for our coverage as a whole. Still, R/E concerns remain; and the recent uptick in Mortgage and Home Equity early-stage delinquencies is something to continue watching closely. Also, the recent strong improvement in Card is likely to abate."
"Based on overall 3Q11 asset quality metrics, as well as forward-looking indicators, BofA (NYSE: BAC), First Horizon (NYSE: FHN), Regions (NYSE: RF), SunTrust (NYSE: STI), TCF (NYSE: TCB) and Wells Fargo (NYSE: WFC) are names that may be worth keeping a closer eye on. Results at First Financial (Nasdaq: FFBC) and M&T Bank (NYSE: MTB) will also likely be impacted by acquisition-related noise. On the other end of the spectrum, City National (NYSE: CYN), East West (Nasdaq: EWBC), People's United (Nasdaq: PBCT), Texas Capital (Nasdaq: TCBI) and Webster Financial (NYSE: WBS) screen better than peers, while KEY and ZION have shown signs of improvement."
"Of the names where nonaccrual in-flows stood at over 30% of NPLs, several were regional banks with above average CRE exposures (KeyBanc (NYSE: KEY), EWBC, BB&T (NYSE: BBT), and RF). The largest linked quarter increases in nonaccruals in the quarter were recorded by CYN, FFNG, and RF, while improvements were posted by Fulton (Nasdaq: FULT), First Interstate Bank (Nasdaq: FIBK), MTB, and KEY."
"The recent TDR accounting change did not appear to have a meaningful impact on loan loss provisioning or reserves. The largest disclosed impact was seen at U.S. Bancorp (NYSE: USB), RF, TCB and FNFG. Accruing TDRs were over 3% of total loans at Citi (NYSE: C), RF, WBS, TCB and Synovous (NYSE: SNV)."
"In 3Q11, NCOs declined for the 8th consecutive quarter (after increasing for 15 straight) and non-current loans (NCLs = NPAs plus 90-days past due) ticked down for the sixth straight quarter. The NCO decline was led by Card (-84bps at the median bank), Other Consumer (-14), Mortgage (-13), Home Equity (-10), CRE (-9), and C&I (-6), while the drop in NCLs was driven by CRE (-25bps at the median bank), Mortgage (-14), Card (-11), C&I (-7), and Other Consumer (-6). However, it is important to keep these improving trends in context as both NCOs and NCLs remain at historically elevated levels."
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Barclays analyst, Jason M. Goldberg, said, "While loan losses remain elevated, credit trends continued to improve in 3Q11 in keeping with our belief that 3Q09 will prove the peak for losses this cycle for our coverage as a whole. Still, R/E concerns remain; and the recent uptick in Mortgage and Home Equity early-stage delinquencies is something to continue watching closely. Also, the recent strong improvement in Card is likely to abate."
"Based on overall 3Q11 asset quality metrics, as well as forward-looking indicators, BofA (NYSE: BAC), First Horizon (NYSE: FHN), Regions (NYSE: RF), SunTrust (NYSE: STI), TCF (NYSE: TCB) and Wells Fargo (NYSE: WFC) are names that may be worth keeping a closer eye on. Results at First Financial (Nasdaq: FFBC) and M&T Bank (NYSE: MTB) will also likely be impacted by acquisition-related noise. On the other end of the spectrum, City National (NYSE: CYN), East West (Nasdaq: EWBC), People's United (Nasdaq: PBCT), Texas Capital (Nasdaq: TCBI) and Webster Financial (NYSE: WBS) screen better than peers, while KEY and ZION have shown signs of improvement."
"Of the names where nonaccrual in-flows stood at over 30% of NPLs, several were regional banks with above average CRE exposures (KeyBanc (NYSE: KEY), EWBC, BB&T (NYSE: BBT), and RF). The largest linked quarter increases in nonaccruals in the quarter were recorded by CYN, FFNG, and RF, while improvements were posted by Fulton (Nasdaq: FULT), First Interstate Bank (Nasdaq: FIBK), MTB, and KEY."
"The recent TDR accounting change did not appear to have a meaningful impact on loan loss provisioning or reserves. The largest disclosed impact was seen at U.S. Bancorp (NYSE: USB), RF, TCB and FNFG. Accruing TDRs were over 3% of total loans at Citi (NYSE: C), RF, WBS, TCB and Synovous (NYSE: SNV)."
"In 3Q11, NCOs declined for the 8th consecutive quarter (after increasing for 15 straight) and non-current loans (NCLs = NPAs plus 90-days past due) ticked down for the sixth straight quarter. The NCO decline was led by Card (-84bps at the median bank), Other Consumer (-14), Mortgage (-13), Home Equity (-10), CRE (-9), and C&I (-6), while the drop in NCLs was driven by CRE (-25bps at the median bank), Mortgage (-14), Card (-11), C&I (-7), and Other Consumer (-6). However, it is important to keep these improving trends in context as both NCOs and NCLs remain at historically elevated levels."
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Citi, KeyBanc, Bank of America, Barclays, BB&T Capital Markets, Wells Fargo
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