PNC Leads Regional Bank ETFs Higher

• Trang Ho
• On 7:12 pm EDT, Thursday October 22, 2009

Regional bank ETFs outperformed the market Thursday and recovered from the prior day's sell-off, hoisted higher by an earnings surprise from PNC Financial Services Group (NYSE:PNC - News).

Shares of the fifth largest U.S. bank rallied 13% and gave strength to regional bank ETFs as they bounced off support at their 50-day or 10-week moving averages.

PNC broke out of a five-month cup-with-handle base and closed 6% above a 48.88 buy point. After more than tripling off its March low, PNC has gained 4% year-to-date. But it's lost 10% in the past 12 months and trades 30% below its 52-week high.

PNC accounts for 6% of assets in Regional Bank Holdrs (AMEX:RKH - News) and 9% of iShares Dow Jones U.S. Regional Banks (NYSEArca:IAT - News).

Group peer FifthThird (NasdaqGS:FITB - News) lost 46 cents a share in Q3. Sales fell 11% year over year to $2.02 billion. Keycorp (NYSE:KEY - News) lost 52 cents a share as sales fell 13% to $1.3 billion. SunTrust Banks (NYSE:STI - News) lost 86 cents a share while sales declined 26% to $2.4 billion. Comerica (NYSE:CMA - News) reported Tuesday that it lost 10 cents a share as revenue dropped 15% to $826 million. These stocks gained 5% to 7% Thursday.

RKH, with 17 stocks, spiked 3.44% to 83.21 Thursday in heavy trade. It has lost 6% in the past 12 months while the S&P 500 has gained 18%. RKH has climbed 8% year to date, underperforming the S&P by 12 percentage points.

It carries IBD Ratings of 55 for Relative Strength and C for Accumulation/Distribution. It trades 17% below its 52-week high and 51% below its all-time high of 167.18 in 2007.

IAT surged 4.3% to 21.43 in nearly seven times usual volume. IAT is down 19% from a year ago and has lost 12% year to date. It has a 27 RS Rating and a C+ for Acc/Dis. It trades 31% below its 52-week peak and 60% below its historic high of 53.49 in 2007.

On Wednesday, RKH swooned 2.56% and IAT 1.72% after a Rochdale Research analyst cut his rating on Wells Fargo (NYSE:WFC - News) to sell, citing mounting loan losses.

Wells takes up 20% of assets in RKH. It's not included in IAT.

Wells Fargo shares bounced back 3.7% to 29.98 Thursday in strong volume. Fox-Pitt, Credit Suisse and Barclays raised their price targets on the stock Thursday.

Twelve of the 17 names in RKH overlap with IAT's 67 holdings. RKH has outperformed IAT mainly due to its outsized weighting, 24%, in JPMorgan Chase (NYSE:JPM - News), which has vaulted 43% this year. IAT has no exposure to that bank.

PNC Profits Despite Loan Losses

PNC's Q3 earnings leapt 37% to $467 million, or $1 a share. Profit beat forecasts of analysts polled by Thomson Reuters by a whopping 245%. Revenue galloped 112% to $4.71 billion. This follows robust sales growth of 87% and 82% in the first and second quarters.

The Pittsburgh-based bank said loan losses blasted to $650 million from $122 million in the year-ago period. But rising interest and fee income, and its buyout of National City Corp., more than made up for the loan losses.

Nonperforming loans rose 1.12% from a year ago. Loans dropped 3%, owing to paydowns and reduced customer demand.

The bank said the rate of credit quality deterioration in Q3 eased from the Q2 level. It projects that its credit costs will fall faster than those of its rivals as the economy recovers. It said it expects to start negotiating repaying TARP loans within 15 months.

With a third of the S&P 500 companies having reported third-quarter results so far, financials have outperformed all sectors.

Earnings in financials bounded 124.8% year over year vs. a 19.2% decline for S&P 500 earnings overall.

"Credit costs may be peaking (or close to it), but most banks believe the macro recovery is fragile and that charge-off levels will remain very high well into 2010," wrote a group of research analysts in a Deutsche Bank equity report.

"This implies many banks will continue to lose money (in Q4 and in the first half of 2010) and that 2010 estimates need to come down."

Buzz up!