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The Regional Bank Trade
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Key Corp [KEY
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] recently joined the ranks of U.S. Bancorp [USB
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], BB&T [BBT
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], and Capital One [COF
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] – as a lender that’s selling stock to raise capital and investors bid all these names lower on the news.
Although these banks may be different in many ways, they all share one common objective – to get out from underneath the government as quickly as possible.
Why the rush to make these offerings?
According to Sandler O’Neil regional banking analyst Kevin Fitzsimmons it has everything to do with timing. Although banks are in favor now, they might not remain in favor for a whole heck of lot longer.
“There’s reason to be concerned as we move along in time,” says Fitzsimmons on Fast Money. “It’s going to be tougher as time goes on (for banks) to get the capital they need at the price they want.”
"A large amount of investors were underweighted the group but it's going to be tougher as time goes on."
If we read between those lines properly, Fitzsimmons is saying regional banks are getting the money now, while the gettin' is good!
Here’s a look at the stock offerings and how the money will be used:
Minneapolis-based U.S. Bancorp, which received a $6.6 billion investment from the government, said it will sell $2.5 billion of its common stock. The bank may also offer medium-term notes.
Virginia-based Capital One, which received $3.55 billion from the government, announced plans to sell up to 64.4 million shares at $27.75 a share for gross proceeds of $1.79 billion. The offering price is an 11.5 percent discount to the stock's Friday closing price of $31.34.
Southeast regional bank BB&T said it will sell $1.5 billion in common stock, and will also cut its dividend by 68 percent to 15 cents to save $725 million annually. The North Carolina-based bank received a $3.1 billion investment from the government last fall.
Ohio-based KeyCorp said it will sell up to $750 million in stock to meet the $1.8 billion it needs to conform to the requirements of the government's stress test.
What's the trade?
I don’t have any buy ratings on banks, Fitzpatrick admits, but I’d look for an entry point in First Horizon [FHN
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] and Whitney [WTNY
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] - two community banks that should emerge relatively strong.
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Trader disclosure: On May 12th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (PCLN),(GS), (WFC), (AGU), (NFLX), (TGT), (WFC), (AMZN), (SDS); Finerman's Firm Owns (BAC) Preferred; Finerman;s FIrm Is Short (BAC), (MSFT), (PBR), (RIG), (UNH); Seymour Owns (AAPL), (BAC), (BX), (EEM), (FXI), (PBR), (POT), (TSL); Najarian Owns (AMD) Calls; Najarian Owns (BX) Calls; Najarian Owns (CROX) Calls; Najarian Owns (F) & (F) Calls; Najarian Owns (INTC) Call Spread; Najarian Owns (MS) & (MS) Calls; Najarian Owns (MOS) Call Spread; Najarian Owns (PALM) & (PALM) Calls; Najarian OWns (XHB) Call Spread; Najarian Owns (XLB) Call Spread; Najarian Owns (XLU) Calls
For Kevin Fitzpatrick
Sandler O'Neill Expects To Receive Compensation From (BBT)
Sandler O'Neill Expects To Receive Compensation From (FHN)
Sandler O'Neill Expects To Receive Compensation From (RF)
Sandler O'Neill Expects To Receive Compensation From (WTNY)
Sandler O'Neill Expects Asks As A Market Maker In Shares Of (WTNY)
Data is a real-time snapshot *Data is delayed at least 15 minutes
