PNC PNC Financial Services Group Inc

For Bank of America Corp. (BAC), repaying $45 billion to the Treasury is a way to get the government off its back; for the rest of the industry, it's a signal that it's time to exit the rescue program.

Fifth Third Bancorp (FITB) and Comerica Corp. (CMA) are two large regional banks that, analysts say, are in the best position to follow Bank of America in repaying the burdensome capital. Shares of both rallied in Thursday morning trading in anticipation of such a move. Helping the stocks was a view that the Bank of America repayment shows regulators' thinking about how much capital banks will need to repay their Troubled Asset Relief Program investments.

"At this time, regulators have not provided a framework for banks of our size to repay TARP," a Comerica spokesman said. "That being said, a top corporate priority for us is to redeem the $2.25 billion in preferred stock as such time as feasible, with careful consideration given to the economic environment."

Wall Street also sought to quickly identify other banks that, as research firm CreditSights Inc. put it, "may need to further rebuild their equity cushions" until they get out of TARP. One that can't escape the government's clutches yet, in analysts' view, is PNC Financial Services Group Inc. (PNC). Shares of PNC and SunTrust Banks Inc. (STI) declined Thursday morning.

A spokesman for PNC said the Pittsburgh bank "expects to redeem TARP in a shareholder friendly manner by the end of 2010, subject to approval by our regulators."

A SunTrust representative declined to comment. Fifth Third was not immediately available for comment.

There has long been consensus among bankers that keeping capital from the Treasury Department's Troubled Asset Relief Program is a bad idea. But chief executives of some regionals, like Fifth Third and PNC, have been reluctant to rush to dispose any capital in times of economic trouble.

Analysts believe that if Bank of America can do it, so can Fifth Third.

"There is pressure on all these banks to repay," said Peter Winter, an analyst with BMO Capital Markets.

And since Treasury has agreed to let Bank of America repay, "the government seems to be on the same page," Winter said: Banks can now muddle through, even if the economy made a turn for the worse.

In addition, Collins Stewart LLC's analyst Todd L. Hagerman said, Bank of America's "TARP approval provides greater clarity on future capital requirements for the industry and perhaps additional evidence that the regulators believe we are getting closer to an inflection point on credit quality."

Bank of America said its Tier 1 common capital ratio, a key gauge of bank health, would be 8.5% after TARP repayment, an $18.8 billion capital raise and asset sales. That means Bank of America would have around 6% Tier 1 common capital even if the adverse scenario that was embedded in the Treasury's stress test on big banks earlier this year came true, Winter calculated.

If that were the standard, Fifth Third and others mulling repayment might need to raise more capital. But Winter said the dilution to shareholders would be more than offset by the positive impact of TARP repayment. Hagerman believed it could repay TARP without raising more capital.

Sanford C. Bernstein & Co. LLC analyst Kevin J. St. Pierre agrees that Fifth Third's capital is strong, but that might not be enough. "They will still be losing money and burning capital for the next few quarters, so I don't expect repayment until late 2010 at the earliest," he said.

Jeff Davis of FTN Equity Capital Markets Corp., meanwhile, said in a research report Thursday morning that management at Comerica, a commercial lender rather than a consumer bank, "will move to redeem TARP in early 2010 provided it is comfortable with asset quality vis-a-vis less need to build reserves."

Shares of Comerica and Fifth Third lost some of their early luster, rising most recently 0.94% to $28.90 and 1.14% to $10.60, respectively. The overall market is mixed, but the KBW large cap bank index (BKX) fell 0.76%.

PNC's stock fell 4.74%, to $53.80, and SunTrust fell 1.50%, to $22.90.

Meredith Whitney of Meredith Whitney Advisory Group initiated coverage for Altanta's SunTrust with a "sell" rating.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

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