Housing Crisis Still Haunts Regions
Helped by a decline in net charge-offs and provisions for loan losses, Regions Financial (NYS: RF) posted profits for the fourth consecutive quarter. But despite the third-quarter results topping analysts' estimates, the regional bank saw its shares fall. Let's dive into the details.
Good quarter? Maybe not...
The bank recorded a profit of $155 million compared with a loss of $155 million last year. However, revenue dropped slightly to $1.6 billion. Net interest income also fell, reflecting lower yields from investments. Revenue growth has been weak for many lenders as persistently low interest rates have reduced gains received from loans.
So despite the bank posting some impressive numbers, things are not all that rosy. Regions struggled, like most around it, during the housing crisis of 2007, and it is still feeling the aftereffects. It has not repaid the $3.5 billion it received from the government as bailout back in 2008.
Although Regions' loan losses have fallen from last year, when we compare it to the reduction in BB&T's (NYS: BBT) and SunTrust Banks' (NYS: STI) loan losses, the bank hasn't really shown much improvement. The bright spot, however, is that the company's capital position is solid, with a Tier 1 capital ratio of 12.8%.
Regions' non-performing loans increased in the quarter by $200 million to $755 million mainly because of loan losses suffered in the realty segment. Real estate has been badly affected by the looming economic uncertainty coupled with declining businesses and loss of consumer confidence. Regions has said the sluggish U.S. economic condition is worsening its loan situation.
Bail me out
To repay its $3.5 billion government loan, Regions plans to sell off its investment banking and brokerage unit Morgan Keegan. A buyer is yet to surface, but the bank is negotiating with private equity firms and hopes to strike a deal soon for an amount in the area of $1 billion or more.
It remains to be seen how Regions Financial will be able to pay off its debt obligations and cope with the adverse economy, though the potential sale of Morgan Keegan for a sizable amount could help. To stay up to date on this regional bank, click here to add it to your stock Watchlist.
At the time this article was published Shubh Datta doesn't own any shares in the companies mentioned above. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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