USB US Bancorp

For Immediate Release

Chicago, IL – February 28, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include JPMorgan Chase & Co. (JPM), U.S. Bancorp (USB), BB&T Corporation (BBT), CBS Corporation (CBS) and The Walt Disney Company (DIS).

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Here are highlights from Monday’s Analyst Blog:

More Bank Failures, Tally Hits 11

After a week’s lull, U.S. regulators were back in action last Friday, shuttering two more banks in Georgia and Minnesota. This brings the total number of bank failures to 11 so far in 2012, following 92 in 2011, 157 in 2010, 140 in 2009 and 25 in 2008.

While the financials of a few large banks continue to stabilize on the back of an economic recovery, the industry is still on shaky ground. The sector presents a picture similar to that of 2011, with nagging issues like depressed home prices along with still-high loan defaults and unemployment levels troubling such institutions.

The lingering economic uncertainty and its effects also weigh on many banks. The need to absorb bad loans offered during the credit explosion has made these banks susceptible to severe problems.

The failed banks are:

• Ellaville, Georgia-based Central Bank of Georgia, with total assets of about $278.9 million and total deposits of about $266.6 million as of December 31, 2011.
• Little Falls, Minnesota-based Home Savings of America, with about $434.1 million in total assets and $432.2 million in total deposits as of December 31, 2011. 

These bank failures represent another jolt to the deposit insurance fund (DIF), meant for protecting customer accounts.

The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,437 banks and savings associations in the country as well as promotes their safety and soundness. When a bank fails, the agency reimburses customer deposits of up to $250,000 per account.

Though the FDIC has managed to shore up its deposit insurance fund over the last few quarters, the ongoing bank failures have kept it under pressure. During 2008 to 2010, bank failures dent the fund by $76.8 billion in total. However, as of September 30, 2011, the fund was in surplus for the second straight quarter.

Also, the balance increased to $7.8 billion from $3.9 billion at the end of the prior quarter. The improvement in fund balance was aided by a moderate pace of bank failures and assessment revenue.

The failure of Central Bank of Georgia is expected to deal a blow of about $67.5 million to the deposit insurance fund, while Home Savings of America will cost about $38.8 million.

Moultrie, Georgia-based Ameris Bank has agreed to assume all the deposits and assets of Central Bank of Georgia. Also, the FDIC and the acquirer agreed to share losses on $192.8 million of Central Bank of Georgia's assets.

The FDIC did not get an acquirer for Home Savings of America. As a result, the FDIC approved the payout of the insured deposits of the failed bank. Also, as a receiver, the FDIC will retain all the assets from Home Savings of America for later disposition.

The number of banks on FDIC’s list of problem institutions saw a sharp decline for the second straight quarter to 844 in the July-September period from 865 in the preceding sequential period. This represents the second quarterly drop since 2006.

Increasing loan losses on commercial real estate could trigger many more bank failures in the upcoming years. However, considering the moderate pace of bank failures, the number in 2012 is not expected to exceed the 2011 tally. From 2011 through 2015, bank failures are estimated to cost the FDIC about $19 billion.

With so many bank failures, consolidation has become the industry trend. For most of the failed banks, the FDIC enters into a purchase agreement with healthy institutions.

When Washington Mutual collapsed in 2008 (branded as the largest bank failure in the U.S. history), it was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).

CBS Issues, Redeems Debt

In a strategic move to reduce interest outflow, CBS Corporation (CBS), announced the offering and redemption of debt, simultaneously. The company came up with a new debt offering of $700 million priced at 3.375% due 2022 and subsequently declared the redemption of its $700 million outstanding 6.75% debt due March 27, 2056.

As per the company, the redemption price includes 100% of the unpaid principal along with the accrued and unpaid interest. The redemption date is scheduled on March 28, 2012.

Moreover, the company intends to repay some or all of its $700 million of outstanding 6.75% senior notes due 2056 with the net proceeds from its new debt offering..

The move was quite obvious as the borrowing costs have gone down despite the significant disruption in the global credit markets. The company cannot allow itself to pay higher rates for many years in a time when debts can be issued with lower coupon rates. One of the company’s competitors, The Walt Disney Company (DIS), also issued debt to bank upon the low bond rates last year.

In the prior week, CBS Corporation announced a quarterly dividend of 10 cents per share payable on April 1, 2012, to shareholders of record as of March 12, 2012.

Recently, the company posted better-than-expected fourth-quarter 2011 bottom-line results. The quarterly earnings of 57 cents a share surpassed the Zacks Consensus Estimate of 53 cents and jumped 23.9% from 46 cents earned in the year-ago quarter.

CBS Corporation ended the quarter with cash and cash equivalents of $660 million and long-term debt of $5,958 million. During the quarter, the company repurchased 7 million shares for $170 million under its $3 billion share repurchase program bringing the total repurchases to $1.2 billion in fiscal 2011.

CBS remains well positioned to drive revenue growth in the coming quarters through its strategic initiatives and operating efficiencies. Management remains optimistic and expects growth momentum to continue in fiscal 2012 based on reverse compensation from affiliates, strong demand of its content and streaming, retransmission consent and political advertising.

Further, the company’s long-term agreements with the NFL, the NCAA, the SEC and the Grammy’s will generate stream of positive cash flows for the company in the long run. 

Currently, we have a long-term Outperform rating on the stock. Moreover, CBS Corp. holds a Zacks #2 Rank, which translates into a short-term Buy rating.

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