"Three Optimistic Banks BB&T, PNC and U.S. Bancorp are the most upbeat for 2012.
Sterne, Agee & Leach
We attended the annual BancAnalysts Association of Boston Conference on Nov. 3 and 4, 2011. A total of 13 banks attended, 12 of which are under Sterne Agee Coverage.
The theme of the conference was "To Buy or Not to Buy: That Is the Question." While there was little new information on the heels of third-quarter earnings, the discussion centered on the prospects for 2012 capital deployment, interest-rate management and market opportunities.
The tone of the conference was unsurprisingly optimistic even as the broader operating environment (anemic growth, subdued interest rates and unprecedented regulatory reform) remains extremely challenging. Most companies reiterated the near-term earnings/fundamental outlook, with fairly little incremental change from third-quarter earnings announcements.
To that end, the companies most optimistic about 2012 prospects include BB&T (ticker: BBT), PNC Financial Services Group (PNC) and U.S. Bancorp (USB), high-quality banks with capital flexibility, revenue diversity and substantial market opportunities (via market-share gains or selective acquisitions).
However, market volatility and global uncertainty (European debt crisis/sovereign risk and slowing global growth) continue to keep investors cautious—particularly given the unusually high price-performance correlations and elevated market betas for bank stocks. Additionally, lack of clarity on capital deployment has eliminated an important potential catalyst for the group heading into 2012.
Little new substantive information was gleaned regarding the 2012 Comprehensive Capital Analysis and Review (CCAR) program [from the Federal Reserve Board]. To that extent, the magnitude of potential capital redeployment for the banking sector remains uncertain, and the mix between share buyback and dividends is to be determined. However, management expectations suggest that the program will likely be tougher (i.e., more conservative economic/stress testing assumptions), and capital-management activities could be subdued relative to investor expectations—particularly buybacks. "