Dividend Yields and Share Buybacks Increase for Many Western Banks as They Avoid Overcapitalization

Wall Street Transcript

67 WALL STREET, New York - March 4, 2013 - The Wall Street Transcript has just published its Pacific and Southwest Banks Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Heightened M&A Activity - Regulatory Obstacles and Fee Income Replacement - Interest Rates and Loan-Growth Strategies - Pockets of Growth in Western Banking - Regulatory Outlook Gains Clarity

Companies include: East West Bancorp Inc. (EWBC), City National Corp. (CYN), CapitalSource Inc. (CSE), SVB Financial Group (SIVB), Bank of Hawaii Corporation (BOH) and many more.

In the following excerpt from the Pacific and Southwest Banks Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What are your favorite stocks right now and why?

Mr. Deer: There are several that I like right now. East West Bancorp (EWBC) is one that I like. It has been putting up very good loan growth, and I think that it has a very strong franchise that benefits from a position of supporting businesses that operate here in the U.S. and have a tie with China, and so it does a lot of international trade and finance lending. As you see more trade between the U.S. and China, not just the U.S. importing but also the U.S. exporting to China, that should continue to benefit East West. Additionally, it has above average profitability with a double-digit ROE, but despite the good growth and above average profitability, its stock actually trades at a discount to the group.

So that's one that I like, but there are a number of banks that are performing very strongly right now. I would also highlight City National (CYN). City National has just a terrific franchise with an extraordinary deposit base that's seen phenomenal growth. It has also seen very impressive growth on the loan side over this past year, and has been expanding into some new lending niches, and is also putting up good profitability that should be much, much better if we ever see interest rates move higher.

CapitalSource (CSE) is an interesting name that I have been talking a lot about with investors. It's a former specialty finance company that has gone through a really impressive transformation of its business model to become a bank over the past few years. It is toward the end of that transformation, and I would expect that this year it converts its existing industrial charter to a commercial bank charter, and then its holding company to a bank holding company.

Along with that, I expect CapitalSource to benefit from lower capital requirements. This is an institution that has just a huge amount of excess capital, and it has been doing massive share repurchases, and I expect we'll see more of that as well as rising or even special dividends. The company is seeing very strong loan growth. It has an above-average margin. It tends to operate in some pretty interesting niches where there is less competitive pricing pressure, so the profitability is strong, with an ROA around 1.30%, and its ROE should improve as it bleeds down more of its excess capital.

Another interesting name...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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