NEW YORK — Shares of regional banks soared Friday as Frontier Financial Corp. jumped on broad investor excitement over how the sector could benefit from the large stimulus package Congress is expected to soon pass, as well as the U.S. Treasury Dept.'s plan to announce another bank-rescue package.
"It's nothing more than going into the weekend with that carrot out there as this takes shape," D.A. Davidson analyst Jeffrey Rulis told Dow Jones Newswires, referring to "a broad base of potential assistance, either helping banks directly or indirectly helping the macro environment."
Rulis said it appears the banks whose shares are up the most Friday are those that are among the most stressed and viewed as the most in need of help. "It's such a downtrodden group that I think some signs of hope can spike these," he said.
Frontier, of Everett, Wash., was up 47% in recent trading to $1.78 after hitting an intraday high of $1.98, although it's still down 59% year-to-date and 90% from a year ago.
Fifth Third Bancorp in Cincinnati also surged Friday, with shares reaching an intraday high of $2.70. The stock was recently up 56% to $2.56 but, like Frontier, has been pummeled so much that it is down 90% from a year ago. The stock has dropped 69% year to date.
Among the other regional bank stocks that rose Friday are Sterling Financial Corp., Regions Financial Corp., Marshall & Ilsley Corp. and Banner Corp. Sterling — which was up 50% to $2.47 recently — is still down 73% year-to-date, while Regions was up 50% to $4.22 recently but down 46% year-to-date. Marshall & Ilsley shares are up 36% to $5.21 and Banner rose 23% to $3.49. Both are still down more than 60% year-to-date.
The recent gains among larger regionals such as PNC Financial Services Group Inc. and U.S. Bancorp were a bit smaller. PNC stock is up 10% to $33 and U.S. Bancorp is up 7% to $16.
Large banks also jumped Friday, with Bank of America Corp. leading their rally. Bank of America surged 27% in recent trading, while Wells Fargo & Co. stock was up 25% to $6, Citigroup Inc. is up 11% to $3.89 and JPMorgan Chase & Co. was up 11% to $27.25.
Rulis noted a key question is whether regional banks will be able to unload their bad loans under the stimulus plan.
Fig Partners analyst Timothy Coffey said investors have been looking to pinpoint which banks could benefit most from an asset purchase by the government. He said the banks whose shares jumped the most Friday seem to be "at the top of the list."
Frontier, Coffey said, has a large percentage of its total loans in residential construction. "Those assets are continuing to fall in value and the bank has been unable to sell them because the prices offered would reduce their capital to an extent that it could be dangerous for the bank to continue as a going concern," he said.
Coffey said "if there was some mechanism that allowed (Frontier) to move these assets to another party," in such a way that the bank could maintain its capital, it would benefit from that.
In an interview, Frontier Chief Executive Patrick Fahey noted that residential construction has been at the crux of the company's credit issues and said whether and how much Frontier could benefit from a stimulus plan "depends on what's in it and what's out of it."
Fahey said if a stimulus plan were to include a first-time tax credit for home buyers and a directive for mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) to buy mortgages for first-time buyers and refinancers, "that would be a huge stimulus, in my opinion, to the overall home market. Would we be a beneficiary? I can't guarantee it, although of course I hope we would be."
Fahey added that "any stimulus to the home-ownership market and even the refinance side would indeed free up funds for consumer spending. I'm speculating the assumption is banks like us would benefit substantially from that. "
Coffey said Sterling Financial and Banner also have high concentrations in residential real estate construction and would similarly benefit from a stimulus if it involved asset purchases by the government.
"The question is, is there something like that in the stimulus plan," Coffey said.
Investors have been questioning whether the banks have enough capital, whether regulatory or tangible equity capital is more important, on top of questions about what's in the stimulus plan and how it would benefit the bank sector.