Ahead of the Bell: Regional Banks

Regional banks said throughout the week that they are considering or will apply to receive direct equity investments from the federal government under its recently passed $750 billion bailout plan.

The plan is aimed at providing relief in the ongoing credit crisis, which has nearly shut down lending among banks and severely reduced the ability for consumers to receive loans. The bailout could also provide relief for struggling regional banks that have been forced to reserve increasing amounts of cash to cover loan losses.

Rising loan losses and the resulting reserves to cover losses have put a dent in regional banks' earnings and led to sharp declines in share prices.

Goldman Sachs Group Inc. analyst Richard Ramsden wrote in a research note that "capital injections will be critical for the performance of regional bank stocks. A broad capital distribution will lift weaker players as it provides Tier 1 capital on attractive terms and strengthens balance sheets against a protracted downturn."

Ramsden added that the capital investments from the government could accelerate the consolidation process among regional banks as the strongest ones will be helped the most in the process.

Multiple banks, while reporting third-quarter results this week, said they were either considering applying for government investments or will definitely apply to the program.

Cleveland-based National City Corp. said it is currently reviewing the government plan before determining whether it will participate. National City posted a third-quarter loss as net charge-offs - loans written off as not being repaid - jumped to $844 million during the third quarter, from $141 million during the year-ago period.

SunTrust Banks Inc. said it is applying to the program. The Atlanta-based bank's earnings fell 26 percent during the third quarter as charge-offs more than tripled.

Regions Financial said it plans to participate in the program and is eligible to receive $1.17 billion to $3.51 billion in capital.

The Birmingham, Ala.-based bank's profit tumbled 80 percent during the third quarter. Again, rising loan losses were the main culprit in the deteriorating performance.

As part of the bailout, the government has already lined up initial investments totaling $125 billion that were allocated to nine of the nation's largest banks.