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Fifth Third, Key stock performance could indicate stress test results
Tuesday, April 28, 2009, 11:17am EDT

http://www.bizjournals.com/cincinnati/stories/2009/04/27/daily17.html?surround=lfn

If investor action on Monday is any indication of the results of the federal government’s stress tests of the 19 largest U.S. banks, Fifth Third Bancorp is in decent shape and KeyCorp might not have done as well.

Government officials gave preliminary results to representatives from each of the banks Friday. The banks aren’t allowed to talk publicly about the tests, which aim to gauge their ability to withstand worsening economic conditions. But Wall Street’s speculation, if not information, points to Cleveland-based KeyCorp (NYSE: KEY), Capital One Financial Corp. (NYSE: COF) and Regions Financial Corp. (NYSE: RF) as the three banks likely to take the worst hit from the results.

Those three bank stocks fell 12 percent Monday. Of the other largest banks (one bank is privately held) none fell more than 9 percent Monday.

Meanwhile, plenty of speculation has focused on downtown-based Fifth Third Bancorp’s (Nasdaq: FITB) exposure to commercial real estate loans, a growing problem area.

“Current focus seems to be on some regional banks having large exposure to commercial real estate loans, like Regions Financial, SunTrust, KeyCorp and Fifth Third Bancorp,” Neena Mishra, an analyst at Chicago-based Zacks Investment Research Inc., wrote in a commentary on Monday. “These banks appear to be undercapitalized to absorb the future losses as (commercial real estate) pricing continues to deteriorate sharply.”

But investors aren’t too worried. Fifth Third’s stock fell just 2.4 percent Monday, making it the fifth-best stock on the day out of the 18 stress-tested banks.

Stress-test results are scheduled to be made public May 4.

Meanwhile, Deutsche Securities launched coverage of Fifth Third’s stock Monday. It started with a “hold” rating on the shares. That joins seven analysts with “hold” ratings on the stock, according to Zacks. Two have “buy” ratings and two have “sell” ratings.

And investors bought an inordinately high number of put options Monday, said Nick Perry, analyst at Blue Ash-based Schaeffer’s Investment Research Inc. Put options allow investors to guard against a further decline in the stock.

Perry noted that Fifth Third has rallied off of its low. It jumped from $1.03 in late February to $4.83 April 17. But it has pulled back to its near-term support levels, closing at $3.62 on Monday.

“A successful hold here would suggest buyers are still willing and able to step in,” Perry wrote in a commentary. “Of particular interest to me would be situations where we see put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign from the contrarian perspective.”