UBS Gets Negative on Regional Banks

Greece did get off its 6-month and one-year bill auction. The auction was well oversubscribed, but as expected they paid a high yield, of 4.55 percent and 4.85 for the 6 and 12 month respectively. The yield on the 6-month was 1.38 percent in the January auction.


1) UBS cuts regional banks to SELL: "Recovery to Disappoint, But Not in Q1." UBS cut ratings on a large group of regional banks to SELL, including KeyCorp , Huntington Bancshares , Regions Financial , and TCF Financial .

The issues: a more protracted credit recovery, slow residential and commercial real estate recovery, and continuing "sluggish" reserve drawdown.

UBS says: "We continue to believe the pace of earnings recovery will fall well short of expectations. We think the recent rally and ensuing valuations are unsustainable, and the group is poised for a meaningful pullback."

Banks: what matters this quarter is credit. Credit quality is far and away issue #1. We need to see the rate of loan chargeoffs and delinquencies leveling off and begin decreasing. Provisions for future losses need to start declining. Unfortunately, it is likely that chargeoffs for things like credit cards will remain high this quarter, as will mortgage writedowns.

The bright spot: fixed income trading revenues. It was a great quarter, with oceans of money (and trading) continuing in areas like high yield. UBS made positive comments on this yesterday.

How about equities trading? Low volatility has beget low volumes and reduced trading opportunities.

JP Morgan kicks off bank earnings season on Wednesday, Bank of America on Friday.

2) Talbots is up 5 percent on strong earnings and guidance in its fourth quarter (which ended in January). Although comps fell 7.2% (inline with expectations), earnings handily beat estimates ($0.13 vs. $0.02 consensus) on further cost cuts and a jump in margins due to fewer markdowns and better inventory controls.

Looking ahead, the women's apparel retailer sees sales for the current quarter and full year growing more that the Street's current estimates.

3) Alcoa falls 1 percent after the aluminum maker's top line disappointed after the close yesterday. Following the earnings report, UBS downgraded the stock to "neutral" and reduced Alcoa's 2010, 2011 & 2012 earnings targets. This was the third downgrade of Alcoa in the past week.

4) RailAmerica reported an 8.7 percent year-over-year rise in freight carloads last month. Much of the increase came from higher shipments of metals (up 128 percent(!)), chemicals (up 24 percent), and agricultural products (up 19 percent). However, slightly offsetting those gains were lower shipments of coal (down 6 percent) and minerals (down 3 percent).

As reported yesterday, several freight car firms have been rising over the past few days on optimism over greater demand as the economy improves.

5) CF Industries falls 2 percent after announcing a stock offering of 10.8 million shares (21 percent of its current shares outstanding). Additionally, it will offer $1.6 billion in senior notes. The proceeds from both sales will help the fertilizer firm repay a loan used to finance its acquisition of competitor Terra Industries.

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