Regional Banks on Fire Today

Most importantly to us, Regions Financial (RF) and Synovous Financial (SNV) our both up sharply today. For RF its clearly partly technical as they hit new 52 week highs and breakout from a double top. For SNV its like just a move with the sector today. Cramer was bullish on banks yesterday and in general the tone seems to be improving.

The Opportunistic/CVIM Model is doing the best today as it has a higher concentration in those 2 stocks while the Growth Portfolio is also gaining in large part to a high concentration in the financial sector at roughly 20%. Though it contains much more of Hartford Financial (HIG) and ICICI (IBN) then these 2 regional banks.

The chart on RF looks similar to how we expect the SP500 to go over the next few weeks. Initial weakness at the recent high (Jan in the case of the SP500) and then support from the rising 20ema and an eventual push to new highs on the 3rd try at 1150.



SP500



Finally the chart of SNV. Not as impressive as RF. Still need to work thru several layers of resistance. The RSI is just at 57 so its got plenty of potential juice left to make that move.

Synovus Financial Pounded on TARP Repayment Fears

Now this news from CNBC and the fact Synovus Financial (SNV) is down 10% tops the list of absurdity. No way SNV would issue any share to repay TARP. They aren't in any pressure and in fact shareholders don't want them to repay TARP at this time. Maybe if the shares jumped to $5-6 they could consider an offering to repay TARP. Otherwise, thats just an issue for the major banks like PNC that did an offering this morning.

Buy the dips from the dips!

Analysts said regional bank shares were hurt by the prospect of TARP repayments, including dilutive common stock offerings like PNC's announcement, and investor worries about first-quarter 2010 performance.

Edit 3:10: Interesting note from FBR on buying the regionals on this dip.

Buy! says FBR Capital Markets analyst Paul Miller in a note to clients today.

On a selective basis, we believe that such an overhang may present an attractive entry point for investors to add or build positions. Names that we would look to take advantage of near-term weakness would be Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), SunTrust Banks (STI), and ZION.

JPMorgan Results were Stellar

The market might have sold off today 'due' to the results at JPMorgan (JPM) and the fears of higher credit costs, but if anything it was a buy the rumor and sell the news. Or maybe just the media reporting the results in such a negative way that it scared the market. We'd bet that come Tuesday, all the buyers will be back as they realize that JPM could easily earn $3.5 next year making the stock clearly cheap.

JPM reported net income of $3.3B or $.74 per share easily beating the $.61 estimates. Revenue was lower then expected, but that's nothing to get excited about in this recovery. Earnings rule revenue any time of the day. They beat estimates by 20% after all but that got quickly brushed aside.

• reported fourth-quarter 2009 net income of $3.3 billion, compared with net income of $702 million in the fourth quarter of 2008. Earnings per share were $0.74, compared with $0.06 in the fourth quarter of 2008. For the full year of 2009, net income was $11.7 billion, or $2.26 per share, up from $5.6 billion, or $1.35 per share, in 2008.

The big key to the earnings report is that JPM added $1.9B to the provision for loan losses. Or basically earnings could've been $5.2B based on net charge offs level. Its easy to assume that loan losses should start to moderate or drop so it seems overly conservative for provisions to continue increasing at this rate. (hmm, maybe they wanted to keep earnings down to avoid the Obama TARP tax from gaining steam)

• Credit costs remained high: added $1.9 billion to consumer loan loss reserves, resulting in firmwide credit reserves of $32.5 billion and loan loss coverage ratio of 5.5%

• Commenting on the firm’s balance sheet, Dimon added: “In the fourth quarter, we further strengthened our credit reserves to nearly $33 billion, or 5.5% of total loans. Our earnings generated additional capital, and we ended 2009 with a very strong Tier 1 Capital ratio of 11.1% and a Tier 1 Common ratio of 8.8%. We remain confident that this capital and reserve strength, combined with our significant earnings power, will allow us to meet the uncertainties that lie ahead and still continue investing in our businesses and serving our clients and shareholders over the long term.”

Interesting video from CNBC regarding asset quality stabilizing. Dick Bove is on a high horse regarding the economic comments from the CEO as he was clearly low balling. Oddly he says to buy the stock even after his rant. More evidence that we're likely to see a couple big upgrades come Tuesday sending the stock and market to new 52 week highs.


No position in JPM at this point, but this makes us more comfortable about other financial positions like Regions Financial (RF) and Synovus Financial (SNV). Morgan Stanley (MS) is concerning on whether the new TARP tax will hold it down for a while.

Synovus Insider Buys

Interesting note from Investopeida on the insider buys at SNV. Whats even more interesting is that the stock has been crushed. Insiders evidently saw the Q3 write offs as a peak while outsiders saw fear of more of the same in the future. We're still sticking with the insider for now. After all the yield curve is on their side.

Synchronized Buying
Synovus Financial Corp. (NYSE:SNV) saw some very active buying in the last week by the company's CFO and one director, and steady buying from seven separate corporate insiders since September 22. The total number of shares purchased over that period was 162,500 with an average cost of roughly $3.00, for a total of approximately $488,000.

More on the Tax Loss CarryBack Legislation

The Wall St Journal is reporting that the proposal to allow Tax Loss Carry Backs for 5 years is poised to be approved next week. It's been difficult to find information on this subject as we originally wrote about it on Wednesday[Tax Loss Proposal Gains Support] and hadn't seen any news about it until finding this article.

The proposal is significant because it will provide immediate capital to a lot of struggling small cap stocks such as Liz Claiborne (LIZ) mentioned in the article. Basically any company losing money now would immediately be able to receive a portion of the taxes back that they've paid the last 5 years. The more they've lost the better. The article doesn't mention financials so we're still wondering what the impact will be on companies such as Regions Financial (RF) or Synovus Financial (SNV) that both received TARP money. If those companies were to get a refund, Congress might come under fire. If excluded, LIZ or Terex (TEX) would be our favorite plays off this legislation.

Maybe that's why this proposal has gotten so little discussion from the media. Nobody wants to highlight a handout for financials and corporations in general. The media is fixated with the housing credit and the extension of the unemployment benefits, but ultimately providing a tax refund of $33B to companies that badly need funds might prove more meaningful.

Considering this legislation, the big selloff today is more confusing. Alot of questionable balance sheets would see immediate improvements leading to higher stock prices. Some of the limited details:

Large and mid-sized companies battered by the recession are on the verge of securing as much as $33 billion in refunds from the federal government for taxes paid as far back as 2003.

The firms won support for the plan from Senate Majority Leader Harry Reid (D., Nev.), who added the tax refunds to legislation extending unemployment benefits and headed for Senate approval as early as next week. The tax provision would allow businesses to carry back losses incurred in either 2008 or 2009 to offset taxes paid up to five years before.

There is also broad bipartisan support in the House for the tax loss carryback provision. If the Senate passes the jobless-benefits bill in its current form, House leaders are expected to bring it directly to the floor and vote on it without modification.

Trade: Added Phoenix Companies and Synovus Financial

Both Phoenix (PNX) and Synovus Financial (SNV) are small cap financials trading below book value. PNX being a badly beaten down insurance company left for dead and SNV being a regional bank that recently did an offering 10% higher. For SNV we have added to a position began at $2.8. If the economy continues to recover, these 2 financials will be big winners.


Edit 11PM: PNX closed above the 20EMA which remains above the 200EMA. If the stock gets follow thru tomorrow, its a must buy with a book value close to $8.




Disclosure: Long in client and personal accounts

Trade: Bought Synovus Financial

Bought an initial position in Synovus Financial (SNV) for the Growth Portfolio. SNV is a Georgia based banking institution hard hit by non performing loans. SNV recently did a $600M equity offering at $4 so the purchase around $3.8 is a 5% discount to that offering. As we've seen on most of these banking deals, the offering eliminates the 'going out of business' fear and allows for the stock to eventually trade more based on normalized earnings down the road in 2011. The extra cash also gives SNV the opportunity to snap up some of the banks that seem to fail every week in GA.

The other reasons to buy are based on the analysis by banking expert Tom Brown and the technicals suggesting prices above $3.8 are support. Do your own homework but don't take too long.