SunTrust: Stress Test Loser
The broad indexes all saw moderate declines, after Chinese Premier Wen Jiabao slashed China's 2012 economic growth target to an eight-year low of 7.5%, citing high inflation and a tepid worldwide economic outlook.
For the largest U.S. banks, the next week is pivotal, as the Federal Reserve next Friday will announce the results of its latest round of stress tests, after which a slew of banks are expected to increase their return of capital to investors, with the notable exception of Bank of America (BAC) , which, "which did not request approval of any return of capital strategies," according to RBC Capital Markets Gerard Cassidy, and Regions Financial (RF) , which still owes $3.5 billion in federal bailout funds received in 2008 through the Troubled Assets Relief Program, or TARP.
Shares of Bank of America pulled back 2% to close at $7.97. Regions Financial was down 0.5%, to close at $5.96.
The The KBW Bank Index (I:BKX) pulled back slightly over 1% to close at 45.01, with 21 of the 24 index components showing declines for the session.
SunTrust's shares have now returned 25% year-to-date, following a 40% decline in 2011.
Cassidy estimates that SunTrust will raise its quarterly dividend payout from a nickel to 9.5 cents a share, or 20% of the analyst's 2012 EPS estimate of $1.90.
Sterne Agee analyst Todd Hagerman said on Monday that the stress test results will "disappoint relative to current investor expectations," and that he "would expect the more spread-sensitive regional banks with: 1) lower earnings power/capital formation, 2) higher risk asset concentrations (residential R/E and construction concentrated in the Southeast) and 3) historical underperformance through past credit downturns to be most vulnerable to a less favorable stress test outcome."
Hagerman said he expected SunTrust "to decline approximately 10-15% once the results of the program are disseminated on March 16 and would advise short-term investors to act accordingly.
SunTrust's shares trade for 0.9 times tangible book value, according to HighlineFI, and for 13 times the consensus 2012 earnings estimate of $1.73, among analysts polled by Thomson Reuters. The consensus 2013 EPS estimate is $2.66.
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-- Written by Philip van Doorn in Jupiter, Fla.