I expect bbt to increase their dividend in the 2nd qtr. 2012. The stress test results will be announced in March. I think bbt has 1 more qtr. of very high credit costs and in 2012 we're going to see a major reduction.
Suggest you read Kelly King 12/6/11 presentation made at goldman sachs financial conference. Found on bbt website. Nice presentation. Note the positives: loan growth for the 4th qtr net of runoff in the 5 to 6% range (annualized); deposits growth continues to be strong, credit continues to improve, bbx acquisition is accretive. Also, note $700 million reduction in credit costs - after tax that's worth $.19 per qtr.
I look for bbt to earn in 2012 15% return on their book value ($3.50 to $4 per share). Major drivers are 80 bsp provision, $700 million reduction in credit costs and solid loan growth.
On the subject of the dividend I think once bbt retires the $3.2 billion of trups in 2013, I think we'll see a higher payout ratio than 30%.
Trups are trust preferred securities. Bbt has around $3.2 billion outstanding. These securities are debentures sold to a trust which in turn sold an equivalent amount of preferred stock to investors. The preferred stock is BBT A, B and C shares outstanding. Their par value is $25 per share. They yield something like 8 to 9% at par. Bbt is calling these debentures in 2013, paying the trust $3.2 billion which is the par or liquidation amount. This money will be distributed to preferred shareholders.
Bottom line is that BBT is getting rid of high interest debt. I think however, that they are already largely hedged in 2012 via interest rate swaps which has driven down the cost of their long term debt. You can see this by looking at the cost of their long term debt overtime. Note that when they announced the redemption earlier this year they started to amortize the swap benefit into their quarterly p&l. As I recall, long term debt dropped from 4 to 3%, a major driver of their nim in 2011.
$3.2 billion is about 1 solid year of earnings and I think bbt will pay for this by building up their retained earnings, so I look for the dividend payout ratio to remain in the 30% plus range for awhile. Of course, much depends on M&A activity. It would be terrific if Sunstrust and BBT agreed to mege based on today's market cap. Sti is selling about $9 below their tangible book. There is a bonanza in cost reduction. I think it would be super accretive to BBT earnings. I don't think their cultures are similar - providing the best value proposition in the market.
Right on Scarb. Kelly King got $10 million last year. What will he get this year (stock was about $28 at year end 2010)? What will he get for 2011 performance? Course he's going to tell you what the stock would have done without him.