Ryan Beck & Co. of Livingston, N.J., initiated coverage for three Ohio banks on Wednesday and said they stand to benefit from the state’s improving economy.
Analyst Kevin K. Reevey gave an “outperform” rating to Sky Financial Group Inc. of Bowling Green and a “market perform” to FirstMerit Corp. of Akron. But Huntington Bancshares Inc. of Columbus got an “underperform”; an investigation of its accounting practices makes it a wild card, Mr. Reevey said in an interview Wednesday.
Still, all three companies are among the top 10 deposit gatherers in the state and therefore stand to benefit from some positive economic trends, Mr. Reevey wrote in a research note.
Despite above-average unemployment, Mr. Reevey predicts that Ohio will generate $60.2 billion in wealth in the five years through 2007. That would be 3% of all wealth created nationwide, he wrote.
And despite a slowdown in manufacturing, which generated 21.3% of the state’s gross product in 2003, Ohio is quickly becoming a center for emerging technology, he added.
In the interview, Mr. Reevey said that the $12.2 billion-asset Sky Financial has increased per-share earnings 20% in the past five years. By that measure it is No. 3 among Ohio commercial banking companies, ahead of the larger Fifth Third Bancorp (No. 4 in earnings growth) and National City Corp. (No. 6).
Furthermore, Sky’s no-interest demand deposits have grown about 16% over the last four-and-a-half years, Mr. Reevey said. “That’s a result of its aggressive sales and service strategy,” he said.
Its stock, trading at a 13% discount to its peers’, is undervalued, he said.
Huntington is under investigation by the Securities and Exchange Commission for accounting snafus in its auto finance business, though the $31 billion-asset company has been paring back its exposure to that business.
Mr. Reevey said he also thinks Huntington has been too acquisitive. It has bought 22 companies and three branches since 1990 and has a deal to buy Unizan Financial Corp. of Canton, Ohio. That deal, announced in January, was scheduled to close in July but has been held up. (Huntington said Wednesday that it is waiting for SEC approval.)
But Huntington is decentralizing its management and introducing more financial products and services in it branches to compete with bigger banks, the report said.
FirstMerit is a potential acquisition target, Mr. Reevey said. It is underperforming other banks of its size in Ohio and the Midwest generally, he said.
“One of their major markets, Akron, has not really participated in the economic recovery,” Mr. Reevey said. “That should stymie growth.” Still, he said, the $10.4 billion asset company is “doing all the right things”: implementing a sales program and stricter credit standards and getting out of certain businesses.
Sky’s shares rose 1.29% Wednesday, Huntington’s rose 0.4%, and FirstMerit’s rose 1%.
