Thursday, February 18, 2010


The remaining large cap banks with TARP funds will need
to raise capital equivalent to 50% of TARP outstanding,
according to our updated analysis, higher than our previous
assumption of 20% of TARP outstanding. We had been estimating
a lower share issuance based on our view that these
superregionals had stronger capital levels relative to their risk
assets and earnings volatility vs. larger peers. The new 50%
estimate is more simply based on the amount of capital that the
rest of the large cap banks have raised in conjunction with

TARP repayment. On average, including green shoes and
other capital actions (e.g. expected asset sales or common
issuances for employee stock plans), large cap banks have
raised common equity equivalent to a median of 50% of TARP
outstanding. We realize that the TARP repayment process is a
bank-by-bank discussion with regulators and Treasury. However,
given PNC’s example where it raised capital driving 4Q09
pro forma common Tier 1 ratio to 8%, or 11% adding National
City’s PAA, we believe it
is more likely that repayment ratios for
Fifth Third, KeyCorp, Regions and SunTrust will come in closer
to the 50% average exhibited by the TARP repayers in our
coverage group. While we do not know what the ultimate
make-up of the capital raises will be, we believe the total issuance
by the remaining banks will be relatively close to what
was raised by the large cap bank peer group.

We currently project that the banks will repay TARP at the end
of 2Q10. In response to the timing of TARP redemption, the
banks have stated:

• Fifth Third – Given current expectations, management
would expect to repay TARP in 2010
, later in the year. While
profitability and improving nonperforming assets are important,
there are no bright-line tests for redemption, and the bank will
repay the funds when they are comfortable with the economy
and their financial position.

• – Management is looking for clear signs of economic
improvement/stability; the company will repay as soon
as it is possible and practical. Regulators have not pressured
the bank to repay.

• Regions – No guidance provided on timing. Management
will repay TARP when it becomes financially prudent, looking at
factors such as profitability, improving credit, and more tangible
evidence of sustained economic improvement.
Reblog this post [with Zemanta]

No comments:

Post a Comment