Shares of regional banks could be poised for a rebound once they announce first-quarter earnings, Morgan Keegan & Co. analyst Robert Patten wrote Wednesday in an industry research note.
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 the note.
Banks' stock prices typically bottom out during a down cycle two or three quarters before charge-offs peak, a point that banks could be reaching, Patten said. Charge-offs are loans written off as not being repaid.
Morgan Keegan estimates charge-offs should bottom out and stabilize during the second half of the year as liquidity improves and financing rebounds for loans. That in turn would allow banks to better gauge of pricing and for some recovery, Patten said.
Two factors that could derail a possible spike in share prices for regional banks are the potential for surprise negative credit 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 43 cents, or 4.4 percent, to $9.35 in afternoon trading. Earlier in the session, shares fell to a 52-week low of $9.32.
BankAtlantic shares fell 14 cents, or 4 percent, to $3.39.
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