Regional bank stocks could be poised for a rebound once the institutions announce first quarter earnings, Morgan Keegan & Co. analyst Robert Patten said Wednesday.
Banks' abilities to provide further insight into credit write-downs and better estimate when credit losses will peak could lead to "a big rally in bank stocks led by short covering," Patten wrote in a note to clients.
During a down cycle, banks' stock prices typically bottom out two or three quarters before charge-offs peak, Patten said. Charge-offs are loans written off as not being repaid.
Morgan Keegan estimates charge-offs should peak during the second half of the year as liquidity improves and financing for loans rebounds. That means the bottoming of share prices could take place in the near future, Patten said.
Two factors that could derail the improvement are the potential for unexpected negative news from some banks when reporting first-quarter results, and a potential spread of credit problems into commercial lending, Patten wrote in the note.
Patten said there "remains a reasonable likelihood that some of the banks may report negative credit surprises, given the continued deterioration in the residential real estate and construction markets."
Some banks that could be facing that problem include BankAtlantic Bancorp Inc. and Colonial Bancgroup Inc.
Shares of Colonial Bancgroup fell 42 cents, or 4.3 percent, to $9.36 in afternoon trading. Earlier in the session, shares fell as far as $9.32, their lowest point since 2000.
BankAtlantic shares fell 18 cents, or 5.1percent, to $3.35.
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