Predicting Profitability In Banks And Gaining 15% Per Annum Investment Returns Until 2013: Credit Suisse Banking Analyst Names Some Of His Top Prospects

• On 7:21 am EDT, Wednesday October 21, 2009

67 WALL STREET, New York - October 21, 2009 - The Wall Street Transcript has just published its Northeast & Mid-Atlantic Regional Banks Report offering a timely review of the sector to serious investors and industry executives. This 20 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Residential Mortgage Situation -- Regional Banks Mergers and Acquisitions Timing Strategy -- Commercial Mortgage Portfolio Decay -- Timing Of Commercial Mortgage Portfolio Bad Debt Write Offs-- FDIC Hit List For Bank Closings -- Mutual Holding Company Structure -- Interest Rate Scenarios -- Banking Pricing Power -- Expensive Bank Valuations -- Tangible Book As Guide For Bank Stock Pricing -- Distressed Sales Of Community and Regional Banks -- TARP Program -- Attitude Of Institutional Investors Towards Resurgence in Community Banking -- Unique Business Models -- Regional Bank Boards Looking For Exit

Companies include: ECB Bancorp, Inc.(ECBE); Evans Bancorp (EVBN); Allied Irish (AIB); BBT (BBT); Bancorp (TBBK); Bank of America (BAC); Bank of Hawaii (BOH); Bank of New York Mellon (BK); Beneficial (BNCL); Bryn Mawr (BMTC); Centrix Bank (CXBT.OB); Chicopee Bancorp, Inc. (CBNK); Citizens CTZN); Colonial (CNB); Columbia Bancorp (CBBO); Comerica (CMA); Community Bank System (CBU); Danvers Bancorp (DNBK); ESSA Bancorp, Inc. (ESSA); FNB (FNB); FNB Bancorp (FNBG.OB); Fifth Third (FITB); First Commonwealth Financial (FCF); First Horizon Bank (FHN); First Niagara Group (FNFG); Fulton Financial Corporation (FULT); Goldman (GS); Hampden Bank (HBNK); Harleysville National (HNBC); Harleysville Savings Bank (HARL); IBERIABANK Corporation (IBKC); Investor Savings Bancorp (ISBC); JPMorgan Chase Co. (JPM); Juniata Valley Bank (JUVF); KeyBank (KEY); Lakeland (LBAI); Legg Mason (LM); M& T Bank (MTB); Mid Penn Bank (MPB); NBT (NBTB); Nat City (NCC); National City (NCC-PA); National Penn Bancshares (NPBC); New York Community Bancorp (NYB); Northeast Bancorp (NBN); Northwest Bancorp, Inc. (NWSB); Orrstown Bank (ORRF); PHH (PHH); PNC (PNC); People's United Financial (PBCT); Pinnacle Financial (PNFP); Provident Bank (PBKS); Regions Financial;(RF); Rockville Bank (RCKB); S&T Bancorp (STBA); SVB Financial (SIVB); Signature Bank (SBNY); South Financial Group (TSFG); Sterling (STL); Sun National Bank (SNBC); SunTrust (STI); Synovus (SNV); TD Banknorth (TD); Territorial Bancorp (TBNK); USBs (USB); United Financial Bancorp, Inc. (UBNK); VSB Bancorp (VSBN); Valley (VLY); Wachovia (WB); Wells Fargo (WFC); Westfield Financial, Inc. (WFD); Wilmington Trust (WL); Zions (ZION).

In the following brief excerpt from just one of the in depth interviews in the 20 page report, the Credit Suisse expert banking analyst discusses the outlook for the sector and for investors.

Craig Siegenthaler is a Senior Equity Research Analyst who covers the financial sector for Credit Suisse in New York. His industry focus includes U.S. regional banks and asset managers.

TWST: What do you think it'll take for banks to start making money again?

Mr. Siegenthaler: The credit costs are going to come because these loans are bad - they're going delinquent, they're going to see defaults. There's nothing we can really do to change that. It's just a matter of time. So basically, we have to wait for these loans to go delinquent, and that rate is rising now. So if delinquencies peak in, let's say, the third or the fourth quarter of 2010, that means non-performing loans rise. So really we just have to wait for these loans to go bad and for these businesses, which are running out of cash to default. There is also some refinancing risk, which is more like a 2011, 2012, 2013 story.

TWST: Is there any reason at this point for investors to be looking at these banks?

Mr. Siegenthaler: The way I think about it, if you can buy them at the right price, you may want to hold them through this type of cycle. By 2013 I think you get back to normal with strong earnings, the kind these banks used to earn. So if you can wait for four years and buy at the right price, you'll see a decent level of appreciation. These banks typically trade at 10 to 14 times earnings. So if you can buy a bank for five, or six or seven times earnings, that gives you more than a 15% annualized return. That's not bad. For me it's all about valuation. Within the banks I mentioned earlier, I am a neutral on all three (M&T, Fulton and Valley). The reason I am a neutral though is that all three are much more expensive than the other banks I cover - there is less upside. Additionally, the credit costs will lag the other areas. So if they are lagging, that means earnings could still get worse. The fact that earnings could get worse and they are also more expensive, to me that makes them less of an attractive risk-reward story.

TWST: Thinking about the banks you currently cover, how viable are they? What do their balance sheets look like?

Mr. Siegenthaler: Well post-SCAP - the stress test - almost all of them are pretty good in terms of carrying capital levels. Some of the Southeast and Southwest banks are having some issues, but most of the banks are in a very good position. Because of the SCAP, they raised a lot of capital; they diluted their shares a lot. So they are okay, especially when you think about the larger ones, like BB&T (BBT), KeyBank (KEY) and SunTrust (STI), they raised a lot of capital. Their Tier-1 commons are north of 7%; today that offers a nice bumper. They shouldn't have a problem. The Mid-Atlantic banks, again, basically there are only three that I cover - they are all, I mean, most of them are pretty strong in their capital base. M&T is the exception, but M&T actually has pretty good credit quality now so they may not have to raise capital. The issue for M&T is the Allied Irish (AIB) position, if you've heard about it. They have a large investor in their stock that's having issues of their own that they might be forced to sell.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 20 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

For Information on subscribing to The Wall Street Transcript, please call 800/246-7673

Buzz up!