On March 14,
Zion's Bacorp (NYSE:
The bank wasn't announcing
for another month... it wasn't increasing its
... and there was no mention of a stock buyback.
What happened then? Here's the story...
On that day, the bank told investors it got the okay from the U.S.
Federal Reserve to repay $1.4 billion of the monies it had received
Relief Program (TARP). (TARP is the official name for the bailout
given to struggling financial institutions during the sub-prime
's stamp of approval marked a
for the Salt Lake City lender. It meant the Fed believed the bank
could access enough capital to repay its bailout money and still
withstand another credit crisis like that of 2008...
See, when banks exit TARP it isn't just a one-time event. It has a
long-term positive effect on earnings and share-price performance.
In return for taking TARP money, banks were required to give the
yielding 5%. By paying off TARP, Zions will save about $70 million
annually in dividend payments when it redeems all $1.4 billion of
Zions isn't the only bank stock that's benefited from TARP
repayments either. Across the board, shares of banks that recently
exited TARP have had huge run-ups.
Regions Financial (NYSE:
, completely exited TARP last month, and has advanced more than 40%
so far this year. By comparison, the S&P 500 is ahead less than
Regions Financial still might have room to run... but banks that
have yet to exit TARP provide a better starting point in the search
for the next Regions Financial.
To find these potential turnaround plays, I looked at all the banks
that had not completely repaid TARP yet.
As of March 31, 351 of the 707 banks stilled owed TARP money. The
Treasury expects that "a number" of banks will repay the funds over
the next 12 to 18 months.
Banks have ample incentive to do so too... banks that are still in
the program by November 2013 face increased costs. Their preferred
stock dividend payments will rise from 5% to 9%.
Since our focus is on income investing, I limited my search to
those banks that have yet to repay TARP and also have common or
yielding 5% or more.
I found six names, as listed below:
The first is a common stock,
First Bancorp (Nasdaq:
. Like Zions, the bank repaid last August half of its $25 million
TARP debt out of
. It has paid a steady and rising dividend every quarter for more
than a decade, without missing a beat even during the
of 2008 to 2009. The current rate of $0.78 per share annually
carries a solid
of 5.2% at today's price.
The other names listed above are preferred shares.
Zion's series C (NYSE:
are both equity shares that throw off
Neither can be called until at least a year from now. BPOPP pays a
rich monthly dividend and can't be called until May 2013, but the
shares are considered a highly speculative "CCC+" by Standard &
Poor's, meaning the risk of default is reasonably high. Zion's
are considered slightly safer at "BB."
The next two names on the list are trust preferred securities:
PrivateBancorp Trust IV 10% (Nasdaq:
M&T Capital Trust IV, 8.50% (NYSE:
. Their statedcall dates aren't until 2013, but under the
Dodd-Frank legislation they could be called earlier if the company
wishes to recapitalize and declare a "capital treatment event."
Given that both securities are trading above their $25
possibility is a risk factor.
The final name on my list,
Synovus 8.25% tMEDS (NYSE:
, is a note that converts into
shares on May 15, 2013. The issue is rated a speculative "B-" by
Standard & Poor's.
Risks to Consider:
Let me warn you though, paying back TARP is by no means a
miracle cure. It might improve liquidity, but some of these banks
may still hold risky assets, have poor profitability, and weak
Action to Take -->
That said, all of these securities could attract some positive
attention when TARP repayments or restructuring improves their
credit quality. Each of these stocks requires further analysis, but
personally, I find First Bancorp's common shares to be particularly
interesting. With its long-term dividend track-record, it could be
a good stock to keep your eye on as the November 2013 deadline
-- Carla Pasternak
Carla Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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