NEW YORK — Shares of regional banks climbed Tuesday, continuing their recent gains ahead of third-quarter earnings reports.
The earnings season unofficially kicks off Wednesday when aluminum giant Alcoa Inc. reports its results after the bell. Bank earnings will follow in the weeks to come.
"I think part of the catalyst for this [the stock movement Tuesday] is people expecting earnings to be a little better than previously expected because of positive economic news," Sterne Agee's Edward Timmons said, though he cautioned he doesn't believe results are going to be as good as many hope.
Fox-Pitt analyst John Pancari agreed, saying stocks could be getting a boost Tuesday from short covering ahead of earnings.
"Also, I think some people are speculating credit numbers may not be as bad as some fear," Pancari said, adding he believes deterioration in the quarter still could be significant, especially with commercial real estate.
In recent trading, the KBW Regional Banking Index was up 2.8%. Zions Bancorp climbed 4% to $17.82, while Fifth Third Bancorp rose 4% to $9.86. SunTrust Banks Inc. increased 1.3% to $22.15, and Regions Financial Corp. grew 2.4% to $6.10.
Sterne Agee's Timmons said that "perceived lesser quality names or ones beaten up a little bit more" are rebounding more than some of the other banks.
UCBH Holdings Inc. jumped 56% to $1.03 amid reports Beijing-based China Minsheng Banking Corp. plans to seek U.S. regulatory approval to increase its stake in the bank. A representative from UCBH declined to comment.
"Though we would view the prospects, if true, of a larger and deep-pocketed owner of such a large stake in UCBH as positive, we are keeping our target price of $1," said Standard & Poor's Equity Research analyst Erik Oja, based on UCBH trading at a steep discount to peers due to its failure to file first- and second-quarter reports with the Securities and Exchange Commission.
Meanwhile, Marshall & Ilsley Corp. slipped 2.4% to $7.75 after saying its third-quarter results will miss expectations. It did say, however, that losses from its most troubled portfolio of loans will peak in the first or second quarter of 2010 and that bad loans fell in the third quarter for the first time on a sequential basis in four years.
JMP Securities analyst John Hecht said investors could be boosting Zions' shares based on M&I's results.
"The bottom line was worse than expected, but the company cited stabilizing credit quality trends," Hecht said, adding that if M&I is seeing stabilizing trends in construction in Arizona, it could be benefiting Zions.
Monday, banks got a boost from Goldman Sachs raising its rating on large banks to attractive. Improved earnings, stronger balance sheets and bigger assets following a year's worth of acquisitions at several large banks have raised some analysts' views of the sector going into the quarterly reports.