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David Faber: Regional Banks' Stress Test Danger

Published: Thursday, 23 Apr 2009 | 3:18 PM ET

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By: CNBC.com

Amid big news from big banks like Citigroup [C Loading... () ] and Bank of America [BAC Loading... () ], some may be overlooking the impact of the regional banks — at their own peril.

CNBC's David Faber dissected the quarterly earnings reports from SunTrust Banks [STI Loading... () ] and Fifth Third Bancorp [FITB Loading... () ] and offered his take on the regionals in general — and the coming "stress tests."

Fifth Third posted a net loss of $26 million, or an earnings-per-share loss of 4 cents. But with core deposits up 4 percent, Faber notes the Midwestern bank had "what some analysts are calling a modest beat."

SunTrust had what looks like even deeper negatives: a net loss of $875.4 million, or a loss of $2.49 EPS.

"But a lot of this loss was due to a one-time impairment charge," Faber noted, and was "more or less what a lot of analysts were expecting."

SunTrust was "once one of the giants, down South," but had an Achilles' heel: "It was dependent to a large extent on real estate." Now, its mortgage production income is "not performing well, but just may be earning its way out."

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With negatives more moderate than some feared, is the outlook sunnier for regionals? Perhaps, said Faber. But there's a potential danger ahead, especially for TARP recipients like U.S. Bancorp [USB Loading... () ]:

"The larger question is the stress test. Commercial loans and real estate are going to be treated more hardhly than credit cards, home equity and even mortgages." Thus, Faber warns, "regionals may take a bigger hit" than the big banks.