Are Regional Banks on the Rise?

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While questions of risk and liability have continued to plague several major banking institutions as of late, the fortunes of smaller, regional banks are improving.

Moody’s announced Wednesday that its Investors Service has kept the long-term ratings of Regions Financial (NYSE:RF), a holding company that operates throughout the South, Midwest, and Texas, under review for upgrade because of the bank’s success at reducing its risk profile. Regions currently has a Ba3 rating for senior debt, a B1 for subordinated debt, and a standalone bank financial strength rating of D+. However, it is the bank’s baseline credit assessment of ba1 that has been placed under review for upgrade. The ratings service stated that the revision will depend on Regions’ initiatives in reducing its level of non-performing assets.

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On Tuesday, Jefferies Group reiterated its buy rating on shares of Huntington Bancshares (NASDAQ:HBAN) in a research note issued to investors. The holding company’s shares, which closed at $6.91 on Tuesday, were given a $7.50 price target by the firm. Analysts at Sanford C. Bernstein downgraded the stock from an outperform rating to a market perform rating on September 19 with an $8 price target, and Zacks’ analysts reiterated a neutral rating on September 5.

But both JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) are still embroiled in litigation. New York State Attorney General Eric Schneiderman’s lawsuit against JPMorgan over mortgage-backed securities sold by Bear Stearns before that company was acquired by the bank in 2008 has increased the pressure on Bank of America. That bank is also facing successor liability in its suit with monoline bond insurer MBIA over shoddy mortgages underwritten by Countrywide Financial, which Bank of America bought in 2008.

As BTIG analyst Mark Palmer wrote in a recent report, “Schneiderman’s boldness in asserting JPMorgan’s successor liability may create an atmosphere in which Bransten [New York State Supreme Court Justice] may be less likely to let BAC off the hook for Countrywide’s actions.”

However there is good news for JPMorgan as well. While the bank saw old-fashioned growth through the construction of 223 new branches during the second quarter, it has also focused on increasing its private client customer base. Furthermore, JPMorgan has led all major banks through the first three quarters of 2012 in global investment banking fees, which amounted to $3.6 billion.

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