The Zacks Analyst Blog Highlights: JPMorgan Chase, U.S. Bancorp, BB&T, Western Digital and Seagate Technology

Zacks


For Immediate Release

Chicago, IL – October 2, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include JPMorgan Chase & Co. (JPM), U.S. Bancorp (USB), BB&T Corporation (BBT), Western Digital Corporation (WDC) and Seagate Technology plc (STX).

 

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Here are highlights from Monday’s Analyst Blog:

 

Bank Failures: 43 So Far in 2012

After a week’s respite from bank failures, the Illinois Department of Financial and Professional Regulation – Division of Banking – shuttered Crete, Illinois-based First United Bank last Friday. This takes the number of failed U.S. banks thus far in 2012 to 43, following 92 in 2011, 157 in 2010, 140 in 2009 and 25 in 2008.

The failed bank had total assets of $328.4 million and total deposits of $316.9 million as of June 30, 2012.

While the financials of a few large banks are stabilizing on the back of an economic recovery and increasing dependence on noninterest revenue sources, the industry is still on uncertain ground. The picture that emerges from the sector is not unlike 2011, with nagging issues like depressed home prices, still-high loan defaults and unemployment levels troubling these institutions.
 
The lingering economic uncertainty and its ill effects weigh on many a bank. The need to absorb bad loans offered during the credit explosion has made these banks susceptible to myriad problems.
 
The Acquirer

New Lenox, Illinois-based Old Plank Trail Community Bank, National Association has agreed to assume all the deposits and assets of First United Bank. Old Plank will pay a premium of 0.60% for the deposits of First United Bank.

Impact on FDIC Fund

This bank failure represents a further dent in the deposit insurance fund (:DIF), meant for protecting customer accounts.

The FDIC insures deposits in 7,246 banks and savings associations in the country as well as promotes their safety and soundness. When a bank fails, the agency reimburses customer deposits of up to $250,000 per account.

Though the FDIC has managed to shore up its deposit insurance fund over the last few quarters, the long spate of bank failures have kept it under pressure. However, as of June 30, 2012, the fund rose for the fifth straight quarter.

Also, the balance increased to $22.7 billion as of June 30, 2012 from $15.3 billion at the end of 2011. The continued improvement in the net worth of the fund is attributable to a slackening pace of bank failures and rising assessment revenue.

The failure of First United Bank will cost the FDIC about $48.6 million. From 2012 through 2016, bank failures are estimated to cost the FDIC about $12 billion.

Shrinking Problem Bank List

The number of banks on FDIC’s list of problem institutions saw a sharp decline for the fifth straight quarter to 732 in the April-June period from 772 in the sequentially preceding period.

Increasing loan losses on commercial real estate could trigger many more bank failures in the upcoming years. However, considering the moderate pace of bank failures, the 2012 number is not expected to exceed the 2011 tally.

Consolidation to Continue

With so many bank failures, consolidation has become the industry trend. For most of the failed banks, the FDIC enters into a purchase agreement with healthy institutions.

When Washington Mutual collapsed in 2008 (the largest bank failure in the U.S. history), it was acquired by JPMorgan Chase & Co. (JPM). Other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).

 

WDC Rolls Out New Products

 

After chopping fiscal first quarter estimates last month, Western Digital Corporation (WDC) is taking measures to boost its sales by introducing new products in the market.

The company increased its enterprise-class storage offerings as it rolled out the new “WD RE SAS” and “WD RE SATA” hard drives. These hard drives have the highest capacity available in the market presently as they can store data up to 4 TB. The product would be made available to customers in different capacities - 1 TB, 2 TB, 3 TB and 4 TB.

The 3.5-inch WD RE SAS and WD RE SATA are good for enterprise-class customers and cater to the incremental demands of business-critical environments.

Western Digital seems to have grabbed a strong foothold in the capacity-optimized 3.5-inch market segment. WD RE SAS and SATA 4 TB drives are specially designed for enterprise storage and applications. This enhanced version offers 33% more capacity than earlier versions of the product.

Although the company is coming up with new products, management expects cost pressures to continue, which will be driven by rare earth materials, logistic costs, foreign currency exposure and some underutilization of capacity. The company will work closely with its suppliers in resolving cost challenges. Moreover, the company’s capex plans for new products are still intact.

Western Digital expects the weakness in PC demand to have a significant impact on the overall market for hard disks. The company currently expects quarterly shipments to drop to 140 million units from 157 million guided previously. We expect the improved mix from the addition of Hitachi’s Global Storage Technology business to positively impact the gross margin.

This apart, the Hitachi deal is expected to strengthen its foothold in the data storage business. Although the company has been able to handle competition efficiently, competition from Seagate Technology plc (STX), Fujitsu Ltd, Samsung and Toshiba keeps it on its toes.

The company has a Zacks #3 Rank (implying a short-term Hold rating).

 

 

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Read the analyst report on JPM

Read the analyst report on USB

Read the analyst report on BBT

Read the analyst report on WDC

Read the analyst report on STX

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