Some banks struggle as others get back to business as usual

11/03/2009 10:30 am EST


Jim Jubak

Founder and Editor,

You think the current wisdom that the banking sector is divided into the “have-nots” and the “haves” is an exaggeration?

It’s very, very real—and it should be one of your guiding concepts if you’re thinking of buying any stock in the sector.

There are banks that have emerged from the crisis. And there are banks still stuck in the crisis and hoping that they’ll survive.

The division was on startling display in announcements from two banks on November 2.

Exhibit #1 comes from a have not, Regions Financial (RF), a troubled regional bank, faced with a rising tide of non-performing commercial and real-estate loans. In the third quarter the bank put aside an additional $1.03 billion provision against loan losses.

On November 2 the company announced that it would extend its participation in the Federal Deposit Insurance Corporation’s (FDIC) Transaction Account Guarantee program through June 2010. In this program the FDIC extends its usual insurance guarantee of $250,000 per account to include an unlimited guarantee of all non-interest bearing transaction accounts and all NOW checking accounts paying less than 0.5% interest. That covers pretty much all checking accounts.

Exhibit #2 comes from a have, US Bancorp (USB), a bank that has repurchased the $6.6 billion in preferred stock it issued to the U.S. government as part of the TARP program launched during the worst days of the financial crisis in the fall of 2008. The bank has also repurchased the 10-year warrants it issued as part of that financial package from the U.S. Treasury.

On November 2 the company announced that it would not participate in the FDIC’s Transaction Account Guarantee program after December 31, 2009. After that time accounts covered by that program would have only the usual FDIC insurance guarantee of $250,000. Amounts above that would not be covered by an FDIC guarantee.

The practical difference is quite probably small. It’s unlikely that either bank has a huge number of checking accounts with more than $250,000 in them.

But the difference between the actions of the two banks is none-the-less significant.

Regions Financial feels that it needs to continue to reassure its customers with a federal guarantee. US Bancorp feels that its customers are ready to go back to a normal FDIC guarantee because the bank itself.

US Bancorp is moving toward a return to its pre-crisis model of business. It has already earned a stamp of approval from the FDIC and other regulators: It’s a bank that the Feds go to if they’re looking for a strong hand to take over a troubled bank or its assets. And now it is ending the last remaining pieces of its government guarantees. An increase in the bank’s dividend by 5 cents or so—leaving it still well short of the 42 cents a share pre-crisis dividend--after the December meeting of its board of directors would be the next step in the bank’s return to normalcy.

Normalcy is still something “have-not”  banks can only aspire to.
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