There were banks that managed pretty well through the financial crisis. Wells Fargo (NYSE:WFC), for instance, didn't report a single full-year loss during the downturn. US Bancorp (NYSE:USB) can claim the same thing. But as for Regions Financial (NYSE:RF)? Not so much.
Going back to 2008, Regions has not reported a profitable year since the meltdown began. On the bright side, the losses have shrunk year after year and over the past 12 months, the bank is back in the black. But it's hard to blame investors who want to hold their nose and skip over Regions.
But if we can look past this lackluster multiyear performance, there may indeed be a case for owning Regions' stock.
Picking up the pieces
Based on its financial crisis performance, Regions clearly can't claim to be a conservative bank that broke from the pack. In fact, you could argue it was one of the pack leaders. Nope, the opportunity in Regions, if there is one, is as a turnaround play.
There are quite a few areas for improvement that could drive a bull case.
At its core, a bank makes money by borrowing at one interest rate and then lending at a higher rate. Regions has opportunities on both sides. On the borrowing side, Regions has been focused on shifting away from higher-rate certificates of deposit and toward lower-rate (or interest-free) checking and savings accounts. On the lending side, it's looking to increase its ratio of loans to deposits. At a ratio of four-fifths, it has some room to move up if it can find willing (and creditworthy) borrowers. That's been an admitted problem. To help create more loan activity, Regions has been investing in its credit card business and its indirect auto business (i.e., auto lending with the dealer as the middleman).
On the cost side, Regions is seeking savings via technology and a self-professed focus on continuous improvement. Costs will go down further if Regions is able to get its bad debt write-offs under control and execute conservative lending policies to ensure future loan portfolio performance is solid.
Since a bank gets its opportunities in the area in which it operates, good economic news for the Southeast region would be good news for Regions. If the area can sustain growth, Regions' strong market share position puts it in line to benefit.
If Regions is able to succeed and maintain profitability, it could be in line for a credit rating upgrade and cheaper funding. And a higher dividend payout could serve the dual purpose of paying out cash to shareholders and boosting the share price because of increased confidence.