Shares of Regions Financial Corp. of Birmingham, Ala., soared more than 19% Tuesday as investors rewarded its takeover of a failed Georgia bank's deposits.
Regions cut its dividend in July after reporting a steep decline in second-quarter profits, causing some analysts to worry that it might need to raise capital this year to offset home equity losses.
At the end of last week its shares were down 60% for the year, but its announcement Friday that it would work with state and federal regulators to absorb about $900 million of deposits and operate the five branches of Integrity Bank of Alpharetta, Ga., was well received on Tuesday.
Integrity, whose branches were in the Atlanta suburbs, failed to raise $40 million after regulators in May gave it two months to devise a plan to replenish its depleted capital levels.
Jefferson Harralson, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said in an interview Tuesday: "Regions has said they might raise capital at the right price. But with regulators seemingly giving them a stamp of approval, it certainly makes it seem as though Regions has plenty of time to raise capital — if it even needs to."
Steven Alexopoulos, an analyst at JPMorgan Chase & Co., wrote in a research note Tuesday that the banking company's "ability to take advantage of the recent bank failure … shows us that even in a strained market environment, mid-cap banks are in a position of relative strength."
By gaining about 23,000 Integrity customer accounts, Regions bolstered its share in Atlanta, a market that demographers say has good long-term growth potential. Kevin Fitzsimmons, an analyst with Sandler O'Neill & Partners LP, upgraded his rating on Regions to "hold," from "sell."
A Regions spokesman did not immediately return a call Tuesday. In July the $144 billion-asset Regions cut its dividend for the first time, by 74%, to 10 cents a share, to save $780 million in annual capital, and reported that second-quarter earnings fell 55% from a year earlier, to $206.4 million.
Earnings per share were 30 cents, 12 cents below the average analyst estimate, according to Thomson Reuters. Regions' loan-loss provision more than quadrupled from a year earlier, to $309 million. It attributed much of its problems to home equity losses.
C. Dowd Ritter, Regions' chairman, president, and chief executive, said during an earnings conference call that his company had put a moratorium on land loans and condominium loans to stem credit losses. But, he said, "There is no quick fix to today's housing-related issues."