Hobbled Regional Banks' Loan Books Show Broad Credit Rebound
23 July 2010 - 4:36AM
Dow Jones News
U.S. regional bank earnings Thursday reveal a credit rebound
that now extends even to Ohio and the Southeast--two areas that
struggled for two years with loan losses.
In Ohio, which suffered badly during the recession, Fifth Third
Bancorp (FITB), Huntington Bancshares Inc. (HBAN) and KeyCorp (KEY)
all revealed their loans books improved markedly during the
quarter.
In the Southeast, a hotbed of the banking crisis, SunTrust Banks
Inc. (STI) reported a narrower quarterly loss, and said its costs
from bad loans could start falling over the second half of the
year.
Bearing more sober news Thursday was BB&T Corp. (BBT), whose
levels of troubled loans rose in the quarter.
The nation's deep ranks of traditional banks, especially
regionals, must still grapple with shrinking sources of future
profits--especially the scarce appetite for new loans. But
Thursday, even weak regional banks' reports suggest they finally
have accounted for a majority of the mistakes they made during the
nationwide property bubble, which popped violently in 2008. Shares
of several regional banks were strong; Fifth Third's stock was up
10.7% to $12.49 in early afternoon trading.
KeyCorp and Huntington both turned profits because they
disbursed millions of dollars into earnings that they previously
had set aside to cover loan losses. KeyCorp released $200 million
from its loan-loss reserves and Huntington released about $85
million, signaling they no longer expected those losses to
occur.
Those credits for both banks proved to be the difference between
a quarterly profit and loss. Cleveland-based KeyCorp, which has
1,000 branches in 14 states, earned $70 million--its first profit
after eight straight losing quarters.
Huntington, in Columbus, which has 600 branches in six states,
earned $48.8 million, up 23% from the first quarter. Huntington has
now turned two consecutive quarterly profits after previously
posting five straight quarters of losses.
Huntington Chief Executive Stephen Steinour said the bank
recently sold $274 million in distressed loans in part to improve
the face of its loan books. In an interview with reporters
Thursday, Steinour said the bank had a "desire to get our credit
metrics better than our peers."
Cincinnati-based Fifth Third earned $192 million during the
quarter, its first quarter of operating profits since 2008. Fifth
Third, which has 1,300 branches in 12 states, released $109 million
from its loan-loss reserves. Its nonperforming loans, or loans
nearing permanent default, fell in every category except
mortgages.
During the credit bubble, all three Ohio banks made big bets on
commercial real-estate loans, which later turned into billions in
losses. All three banks also remain part of the federal
government's Troubled Asset Relief Program, or TARP.
Shares in KeyCorp were recently up 5.2% to $7.94, while shares
in Huntington were recently up 3.4% to $5.86.
Elsewhere near the Ohio River Valley, PNC Financial Services
Group Inc. (PNC), one of the strongest banks to emerge from the
banking crisis, earned $803 million, nearly fourfold from a year
ago. The bank lowered its expenses and widened its net interest
margin, or the profit it makes by borrowing at low rates and
lending at higher rates. PNC actually increased its provision for
loan losses compared with the first quarter, but its levels of
nonperforming assets fell 7% from the first quarter.
SunTrust, in Atlanta, which has nearly 1,700 branches in about
seven states, disclosed its nonperforming loans fell sharply to
$5.5 billion after they had hovered around $6 billion for many
quarters.
SunTrust's shares were recently up 10% to $24.69 and PNC was up
1.9% to $59.64.
BB&T, like PNC, was a winner during the banking crisis,
buying a large troubled competitor, Colonial Bancgroup. It reported
$224 million in net income, up 8% over last year's second quarter.
But the bank's provision for credit losses rose after falling in
the first quarter. Shares fell 1.7% to $25.47 in recent
trading.
BB&T Chief Executive Kelly King did say loan demand rose in
the second quarter; he cited auto loans, prime mortgages and
traditional loans to businesses.
Earlier in the week, shares of Zions Bancorp (ZION), in Salt
Lake City, and Marshall & Ilsley Corp. (MI), in Milwaukee,
tumbled as their loan books fared worse in the second quarter than
expected.
-By Marshall Eckblad, Dow Jones Newswires; 212-416-2156;
marshall.eckblad@dowjones.com
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