Regional Banks Facing Bigger Credit Headwinds, UBS Says
October 08 2009 - 9:11AM
Dow Jones News
Wells Fargo & Co. (WFC), PNC Financial Services Group Inc.
(PNC) and several other large regional banks face bigger credit
strains than their stock prices would suggest, UBS AG (UBS) said
Thursday as it started coverage of ten large regional banks with
"sell" or "neutral" ratings.
The note of caution on Wells Fargo from ex-Merrill Lynch analyst
Heather Wolf, known for predicting trouble at Huntington Bancshares
Inc. (HBAN), Zions Bancorp (ZION) and elsewhere in 2007-08,
contrasts with some of the Street's more recent favorable
commentary.
Monday, Goldman Sachs (GS) singled out Wells Fargo and Capital
One Financial Corp. (COF) for upgrades as it raised its rating on
the large-bank sector to attractive.
That upgrade, which came with caveats for most of the
regional-banking sector, followed other Wells Fargo upgrades by
Bernstein Research, Miller Tabak & Co. and NAB Research since
August.
Both Wells Fargo and PNC face "meaningful" credit problems in
the near term that make them likely to disappoint the Street's 2010
and 2011 earnings forecasts, UBS said.
UBS set a $20 price target for Wells Fargo and put PNC at $37,
or about 30% and 20%, respectively, below recent prices of
each.
Wells Fargo shares closed up 2.1% Wednesday at $29.26, and PNC
closed at $45.73.
UBS also set its 2010 earnings estimates for both banks well
under the Street consensus.
Not all regional banks' balance sheets are as challenged, UBS
said, citing BB&T Corp. (BBT), M&T Bank Corp. (MTB) and
U.S. Bancorp (USB) among those with stronger outlooks. But the
stocks of those banks already reflect the strength, UBS said as it
issued a "sell" rating for BB&T and "neutral" ratings for the
others.
UBS also set "sell" ratings for Comerica Inc. (CMA), SunTrust
Banks Inc. (STI) and Fifth Third Bancorp (FITB).
It set Regions Financial Corp. (RF) and KeyCorp (KEY) at
"neutral."
Shares in Wells Fargo slipped 0.1% to $29.23 in premarket
trading, while PNC was off about 0.5% to $45.38.
Officials at Wells Fargo and PNC could not immediately be
reached.
-By Brendan Conway, Dow Jones Newswires; (212) 416-2670;
brendan.conway@dowjones.com